Record capital raising at PSE expected this year

January 5, 2018 - 7:02 AM
A trader celebrates the first day of trade after the 2018 ceremonial bell ringing at the Philippine Stock Exchange in Makati City on Jan. 3. Photo by Geremy Pintolo, Phil. Star

MANILA – Encouraged by the positive economic outlook, corporates are expected to raise a record amount of capital from the stock market this year, even with a slowdown in initial public offerings (IPO), First Metro Investment Corp. (FMIC) said in a briefing on Thursday.

Capital raising will accelerate by a third to P934 billion this year from P724 billion in 2016 on the back of higher equity and fixed-income issuances, FMIC Head of Investment Banking Group Jose Pacifico E. Marcelo said.

Equity issues will advance 79% to an all-time high of almost P247 billion, with issuances from listed companies driving the increase.

The flurry of fund-raising activity at the stock market comes at a time when the bellwether Philippine Stock Exchange index (PSEi) is seen peaking at 9,400 this year, translating to a price earnings (PE) ratio of 21x and supported by a growth of 10% in earnings per share, First Metro Investment Corp. (FMIC) Head of Research Cristina S. Ulang said. PE ratio is a measure of how expensive a market is.

After rallying to uncharted territory at the start of the year, the PSEi’s level is still “well-justified” because income growth remains robust, but investors have to be more “picky” in selecting stocks, Ms. Ulang said, noting property, banks, consumer, infrastructure, conglomerates, manufacturing and utilities are its preferred sectors.

The planned $3-billion follow-on offering of an enlarged San Miguel Pure Foods, Inc. will quadruple the total value of follow-on offerings and private placements to P162 billion from P41 billion in 2016.

Stock rights offerings, on the other hand, will slightly go down to P73 billion from P75 billion.

Likewise, the value of maiden share sales will fall by nearly half to P12 billion from P23 billion, Mr. Marcelo said, noting IPOs take a long time to prepare and banks are still the primary source of corporate debt financing.

“We’re not too optimistic that there will be many IPOs, which is sad because IPOs add depth to the market,” Mr. Marcelo said.

One possible new entrant in the stock market is The Lush Company, the firm behind the Fruitas brand. FMIC was tapped to handle the deal, which may take place in the first half, depending on market conditions, Mr. Marcelo said.

For the fixed-income market, corporates will drive the expected 17% uptick in total volume of P687 billion from P586 billion, with retail treasury bonds steady at P437 billion, as the government taps new foreign markets for financing.

Corporate bond floats will climb 68% to P212 billion from P126 billion, and preferred share issuance will increase 65% to P38 billion from P23 billion.

Merger and acquisition activity will remain strong because of the favorable economic growth prospects, with the food and beverage, infrastructure and construction sectors on top of investors’ radar, Mr. Marcelo said.