With the corporate bond market slowing down in the second half of the year, merchant bankers are expecting equity-related activities to drive their growth next year.
Industry players said although the bond market was negatively correlated to the equity market, the increased activities in the latter, particularly in the area of mergers and acquisitions (M&As) and initial public offerings (IPOs), would likely drive earnings growth for merchant banks in the year ahead.
“The industry will be very much driven by the equity market next year, given the higher number of M&As and IPOs expected,” Aseambankers Bhd deputy chief executive officer T. Jeyaratnam said.
As for the corporate debt market, industry players see the current weakness in the bond market continuing. The slowdown, which was caused by the sell-off in US Treasure bonds in the second half, may result in fewer bond issues next year, unless some proposed infrastructure projects called for fresh funding, they said.
According to Jeyaratnam, large corporate restructuring exercises similar to the recent Island & Peninsular Bhd and Golden Hope Plantation Bhd merger will likely dominate corporate advisory activities of merchant bankers.
As for IPOs, the listing of the Federal Land Development Authority and petrochemicals giant Titan Petrochemical Sdn Bhd is expected to add to the vibrancy of the equity market next year.
In addition, the planned re-listing of Celcom Bhd, which was privatised this year, may also increase equity- related activities.
Given the encouraging response from foreign investors to new listings such as All Asia Networks plc (ASTRO) and the proposed flotation of Malaysian Bulk Carrier Bhd, large IPOs are expected to garner a lot of interest.
CIMB Bhd group chief executive Datuk Nazir Razak said there were also signs that foreign investors were interested in investing in new companies, which augur well for other new firms planning to tap the equity market to raise capital.
“I think conditions in the equity market will improve next year and that will be attractive for companies seeking to float their shares,” he said.
But while the corporate debt market has seen a “reversal of fortunes” in the second half this year vis-a-vis the vibrant first half, all is not lost for the industry, which is expected to see its growth come from new projects or infrastructure deals that may require additional funding.
Aseambankers' Jeyaratnam said investor interest in bonds was still strong, but that would depend on the kind of issues to be placed in the market.
He said investors would likely place more emphasis on bond issues for projects with clear cash flow potential. The success of certain issues would also depend on the way they are packaged for investors.
“It is also a question of whether the placees are able to package the bond issues to whet investors' appetite,” he said, adding that the outcome of certain bond issues would also be determined by the method in which they were placed in the market, such as book-building or tender placement.
While fine-tuning a bond issue would help the issuer to successfully tap the bond market, some external factors would also contribute to the growth of the corporate debt market.
For instance, the recent move by Bank Negara to allow insurance companies to increase their investment in bonds to 50% from 40% of their portfolios is expected to free up some RM7bil for the bond market.
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