IPO drought seen persisting in second half as pandemic lingers

MANILA, Philippines — With the local bourse still in bad shape as the coronavirus pandemic drags on, Non-listed companies will likely shelve plans to go public for the rest of the year, as they wait for better business conditions and signs of economic recovery.

The Philippine Stock Exchange (PSE) was originally hoping to see six initial public offerings (IPO) in 2020. However, this target was tempered when the pandemic sent the local stock market to historic lows earlier this year, with the PSE now expecting just "two to three more" capital raising activities for the remainder of 2020.

The PSE so far this year welcomed one IPO from grocery operator MerryMart Consumer Corp., which raised some P1.6 billion on its maiden share sale in June. For the second half, the PSE has approved a P15-billion real estate investment trusts (REIT) application from Ayala Land Inc. and is expecting a record P35.9-billion IPO from fiber optic broadband services provider Converge ICT Solutions Inc.

"With respect to IPOs, we do not have certain numbers but generally it's not a good time to raise capital unless you're seeing silver linings within the economy," Japhet Tantiangco, analyst at Philstocks Financial Inc., said during a virtual press conference on Monday.

Such a case is true for both MerryMart and Converge ICT. 

Net income of the Injap Sia III-controlled grocer soared 50.5% year-on-year in the first quarter after the company benefitted from panic-buying at the onset of the lockdown period. Meanwhile, Converge ICT reported a surge in demand for fixed broadband as companies allow employees to work from home due to contagion fears.

But for other companies, the health crisis and state-initiated lockdowns only tarnished their balance sheets, prompting them to drastically slash capital expenditures and roll back expansion plans to conserve cash. For this year, Philstocks sees corporate earnings either contracting by as much as 20% under a worst case scenario or growing by just 2%.

That said, Beatrice Lopez, equity analyst at Regina Capital, expects future IPO announcements to "depend heavily on the market conditions."

"As it is, we are seeing a trend wherein majority of the listed companies have decided to push back big investments and even reduced capex for the year in order to conserve liquidity," Lopez said in a text message.

"It would make sense to assume that non-listed firms are also doing the same," she added.

Data shows the benchmark PSE index (PSEi) dropped 20.6% in the first half after panic dominated the trading floor. Foreign investors turned sellers during the period, posting net sales of P68.44 billion which was a turnaround from P21.26 billion net buying recorded a year ago.

On Monday, the PSEi closed at 6,150.70, up 33% from its low of 4,623.42 in March. With the Philippines still under a lockdown, albeit looser, Philstock's Tantiangco warned that the rally may not be sustained in the coming months and that the local equity market could be "ahead of itself."

"There's been too much optimism which somehow is already unfounded. Everybody was hoping for a recovery from the economy. Unfortunately, later on the reality came in and we saw the economy is not going to revive as fast as many would think of," he said.

"This is causing bleak economic outlook and this, in turn, is being digested right now which is what we're seeing. We see a correction in the market right now," he added.