The Malaysian IPO market is staging a strong recovery this year from a lacklustre 2016 on the back of significant inflows of foreign capital into the equity market.

Figures supplied by Thomson Reuters show that the IPO volume in 2017 has so far amounted to US$806.2 million from nine deals as of June 23, which already exceeded the measly US$293.7 million raised in the whole of 2016.

The figure is expected to more than double with the pricing of the next IPO, petrochemical company Lotte Chemical Titan Holdings, which is raising about 5.9 billion ringgit (US$1.37 billion). A banker familiar with the deal says the IPO book building will be closed on June 28 and the stock will be listed in Bursa Malaysia on July 11. This will be the largest IPO in Malaysia since 2012 when Felda Global Ventures Holdings raised US$3.27 billion.

Another high-profile IPO is coming into the Malaysian stock market, possibly this year, with the listing of Brunei’s largest lender, Bank Islam Brunei Darussalam. Also a possibility later this year or early next year is the QSR IPO, the banker says.

The IPO marks Lotte Chemical’s return to the stock market after it went private about six years ago, when it was acquired by the current Korean shareholders in a US$1.25 billion deal. The IPO exercise comprises an institutional offering of 684.7 million shares to Malaysian, foreign institutional and selected investors, and a retail offering of 55.78 million shares, which will be made available to company directors, eligible employees and the Malaysian public at 8 ringgit per share.

In what has become a practice in Malaysian IPOs, Lotte Chemical has garnered five cornerstone investors, which have taken up about 18.4% of the base offering. These are Permodalan Nasional Berhad (PNB), Maybank Asset Management, Maybank Islamic Asset Management, Eastspring Investments and Great Eastern Assurance (Malaysia).

The bulk of the IPO proceeds will be used to finance Lotte Chemical’s expansion in Indonesia and Malaysia. It is building a 15.5-billion-ringgit integrated petrochemical facility in Indonesia to increase its ethylene production by up to 1,000 kilotonnes per annum and a new polypropylene plant in Johor to boost production by 200 kilotonnes per annum. Part of the proceeds will also be used to upgrade the group’s existing naphtha cracker plant to enhance production capacity.

The banker attributed the rebound in the Malaysian IPO market to the significant inflows of foreign capital into the equity market. “Certainly, foreign investors are now far more receptive to the Malaysian equity market compared with 2016,” he adds. “This comes as concerns around the ringgit and the Malaysian corporate earnings appear to have bottomed out.”

Cornerstone investors were first introduced to Malaysian IPOs when the country’s largest mobile operator Maxis went public in 2009, in which it raised over US$3.31 billion. Four cornerstone investors participated in the deal – Fidelity and three Malaysian state pension funds: Permodalan Nasional Berhad (PNB), Kumpulan Wang Persaraan (KWAP) and Employees Provident Fund (EPF) – which bought a combined 28% of the offering.

Since then, it has become common to have cornerstone investors participate in IPOs. Most of the participants are Malaysian institutional investors because of the strong domestic liquidity, the banker points out. “A lot of the IPOs in the past were effectively done at the cornerstone stage,” he adds. “We have seen IPOs that were subscribed up to 80% of the offering and the book building process was just a formality.”

The largest IPO so far this year was that of Eco World International, which raised US$581.23 million in March. The company sold 2.15 billion shares at a retail price of 1.20 ringgit apiece. The IPO came with a bonus warrant of up to 960 million. PNB, EPF and KWAP again participated in the deal and altogether subscribed for 47% of the institutional tranche. The stock traded up on its first day of trading on April 3, closing at 1.28 ringgit with 145.5 million shares changing hands.

While Eco World is a Malaysian company, it does not have business in Malaysia itself, as 100% of its property development activity is located in Australia and the UK. “This is something that the Malaysian investors want because they do not have to take money out and invest outside of Malaysia,” the banker says. “They can channel their investment in the Malaysian stock exchange and get exposure to these markets through Eco World.”

The other notable IPO this year was that of Serba Dinamik Holdings, an engineering solutions provider in the oil and gas, and power sectors, which raised US$131.47 million in April.

Apart from IPOs, the Malaysian equity market is likely to see fundraising through other avenues such as share placement. Maxis, in its first equity transaction since its 2009 listing, raised almost 1.66 billion ringgit in June from placement of 300 million shares at 5.52 ringgit each. The deal attracted both local and foreign institutional investors. It was priced at a discount of 9.24% to the volume-weighted average price of its shares for the five trading days up to and including June 16 – the last trading day before the deal announcement.