Stronger pipeline to boost deal flow


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PETALING JAYA: After a delay in key pipeline deals last year, the domestic investment banking scene is set to pick up this year despite facing headwinds.

Ample liquidity, continued fiscal spending, favourable monetary policies are expected to spur the capital market activity.

But much of these also hinges on the economic recovery amid the Covid-19 pandemic.

Maybank Investment Bank CEO Fad’l Mohamed told StarBiz (pic below) that the ongoing Covid-19 pandemic over the past 12 months has shown the resilience of Malaysia’s capital markets, which would continue to remain broad and deep enough to support capital raising activities.

He expects investment banking activity this year to improve after the pandemic delayed key pipeline deals last year.

“With the recovery in global equity markets, we expect the key pipeline deals to continue growing as clients look for opportunities to raise equity capital.

“Sponsors may also be keen to realise their investments through listing exercise, “ added Fad’l.

In the debt capital markets, he expects the activity to match those prior to the onset of the pandemic.

“We expect more muted fund raising for new capital expenditures by corporates, although more refinancing opportunities would surface as corporates look to manage their asset and liability amidst a challenging backdrop.

“Continued fiscal spending, favourable monetary policies and ample liquidity are expected to support the capital market activity, ” Fad’l noted.

On the whole, he also expects to see healthy performance across all investment banking areas, from equity and debt markets to corporate advisory as well as mergers and acquisitions (M&As).

For example, debt capital markets are expected to remain active in the current low interest rate environment, with infrastructure financing in focus as works resume on projects including the Pan Borneo Highway, JB-Singapore Rapid Transit System and the Klang Valley MRT3.

As for M&As, Fad’l expects more M&As as confidence returns to the market amid compelling valuations and companies continued their quest for scale and in-country consolidation.

On investment banking, CIMB Investment Bank Bhd CEO Jefferi Hashim (pic below) said the banking group would be guided by its Forward23+ mid-term strategy, under which CIMB would reshape its portfolio to focus on key segments that offer strong opportunities for profitable growth.

This includes Asean network business within wholesale banking, including investment banking, he said.

In the debt capital market, he said despite the pandemic, the corporate bond market managed to achieve total issuances of RM96bil last year as issuers took advantage of the low interest rate environment to refinance their borrowings as well as for future capital or operational expenditures.

“We expect RM90-RM100bil of corporate bonds/sukuk issuances for 2021 (around RM65-RM75bil corporate sukuk) on the back of government guaranteed issuances, potential refinancing activities, bank capital requirements, infrastructure projects, as well as corporate expenditure requirements.

Malaysia’s initial public offering (IPO) activity raised approximately RM2bil in 2020.

Jefferi said he anticipates a busy pipeline deals for 2021, with issuers having been encouraged by their own resilience in 2020.

In terms of M&As, he said: “Dealmaking in Malaysia will remain challenging in 2021. The ongoing pandemic and a conservative approach by companies to shore up cash, due to challenges arising from slower economic growth, will likely leave less available cash for any near-term M&As.

“Select M&A activity is expected to be driven by acquisitive companies looking to strengthen their business or capitalise on lower valuations. We also expect consolidation among companies within similar verticals, and companies looking to diversify beyond their core vehicles to mitigate the impact of the economic slowdown.

“Key sectors that are in trend now are tech and logistics while consumer staples, healthcare and education continue to be favourites due to their resilience, ” Jefferi said.

On the other hand, Deloitte Malaysia financial services industry leader Anthony Tai (pic below) expects the investment banking industry to experience flat growth this year, primarily driven by the ongoing impact of the pandemic

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In general, he said local corporations are adopting conservative policies, including cost cutting, shoring up cash, and taking less risks by shelving their expansion plans.

Most will, he said adopt a wait and see posture. The Securities Commission (SC) expects 2021 to be a good year in relation to new public offerings with 30 expected new listings compared with 19 in 2020.

Tai also believes that the SC’s views on public offerings tend to be “a little too optimistic and the actual number for this year to be lower.”

“Our forecast is that the number of new listings will be probably similar to that of 2020. We note that interest in the stock market in the country has picked up in the last two years, primarily driven by retail players.

“However, we believe that this will not have a significant impact in encouraging more companies to seek listing.

“We also do not expect M&A activities to grow in 2021 – in fact, these activities have been on the decline since 2017 (US$25.4mil in 2017 to US$4.3mil in 2020).

“There are some exceptions, however, driven by local government-linked companies (GLCs) looking for cost effective synergies and foreign private equity (PE) firms hunting for undervalued companies for acquisition, ” he noted.

Furthermore, the business confidence is low and hence, local corporations are less willing to take on additional debts on the balance sheets.

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