Malaysia’s Palm Oil IPO Reveals Global Trends
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With the debacle that was the Facebook IPO the IPO market which was already somnambulant in 2012 has turned positively comatose. The uncertainty in the global markets has even reached the Asia-Pacific region with the proposed $3 billion F1 IPO on Singapore’s exchange put on hold. In Hong Kong year over year IPO volume through May is off 85%. Excluding Facebook, U.S. IPOs are off 53% and globally they are off 46% of 2011’s pace, which itself was just 58% of 2010’s banner year.
But don’t tell any of this to Malaysia’s government who very confidently are moving forward with a June 28th offering of their state-owned Felda Holdings, which is one of the largest Palm Oil producers in the world; supplying around 8% of global total. The IPO is looking to bring in 10.5 million Ringgit ($3.3 billion USD) which would make it the 2nd largest IPO in the world this year, behind the massively overpriced Facebook.
Asia’s Growing Integration
With this IPO this would make 5 major Southeast Asian palm oil companies available for trade in Singapore, while Felda will list on the Bursa Malaysia Berhad. Recent moves to integrate ASEAN’s equity markets will be in place by then to allow cross-listing of stocks from Singapore and Malaysia. Thailand’s exchange will be added in August while Vietnam and the Philippines will be added further out in time.
Malaysia’s equity market has a current market cap of nearly $300 billion. When Thailand is brought into ASEAN Trading Link the combined market cap of the 4 bourses will be $1.4 trillion which should pave the way for much greater liquidity across all of them; giving prospective public companies access to far larger pools of capital than they would have had otherwise.
This will be especially valuable for the smaller exchanges like the two in Vietnam with its $30 billion spread across both the Hanoi and Ho Chi Minh City exchanges which are illiquid and dominated by retail speculation without much, if any, discipline. As ASEAN pushes towards the Asian Economic Community by 2015 standardizing financial and banking regulations across the region is a major priority, which should facilitate the IPO process across the region.
As for the global IPO market, however, the trends are firmly in place, over the past 3 years most of the IPOs in both number and total value have come from the Asia-Pacific region. In 2009 and 2010, Asia-Pacific accounted for 66% of the total value of global IPOs while in 2011 that share dropped to just 51%, though 200 of the 338 deals were made in Asia.
Spain’s Bankia, who is now looking for more than $19 billion in support/bailout from anyone who will help, raised $4.4 billion last July. Between that and Facebook’s disaster, prospective public companies are rightly spooked and will continue to wait. 46 IPOs in Asia have been postponed this year so far for a total of $7.7 billion with F1 Corp. accounting for $3 billion of that.
The Other Oil Market
The palm oil market is in far better shape than the IPO or social media market and Felda’s IPO would be the 2nd major one in that industry this year as Burmitama Agri listed in Singapore in April; shooting up 31% during its first day of trading. The Indonesian company’s IPO was 31 times oversubscribed at the end of the investor roadshow. It was the equivalent of Facebook in Southeast Asia’s markets this year. The price for palm oil has tripled in the past 10 years while production has nearly doubled.
Malaysia is the 2nd largest producer of Palm Oil in the world behind Indonesia; producing 87% of the world’s supply. Sime Darby Berhad, whose 2011 revenues topped $13.2 billion and 1.15 billion in operating income is a major component of the iShares MSCI Malaysia Index ETF (NYSEMKT: EWM) at 7% of the fund’s $847 million AUM. Whereas the iShares MSCI Singapore Index (NYSEMKT: EWS) has approximately 5.1% exposure to two palm oil companies, Wil Mar International and Golden Agri Resources.
The global trends for alternative liquid fuels, i.e. biodiesel, and low cost sources of edible oils and fats have driven an explosion in the growth of the palm oil industry in the past decade that shows no sign of slowing. Palm oil’s massive efficiency as a fuel source and suitability as a food source over soybean and rapeseed oils make it nearly a disruptive technology in the food and energy markets.
PeterPham8 has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.