The number of initial public offerings is expected to surge next year as the expected decline in interest rates increases the attractiveness of equities versus fixed-income securities.
In an interview at the sidelines of the EJAP-AboitizPower Renewable Energy Forum, BDO Capital and Investment Corporation President Eduardo Francisco said his company may be involved with as many as 10 IPOs next year.
“A lot of these have been in the pipeline earlier announced by (Philippine Stock Exchange President and CEO Ramon S.) Monzon before and plans have been revived recently,” he added.
Francisco explained that the high interest rate environment had made it less than ideal to invest in stocks since yields are lower than bonds despite the inherent risk of price volatility.
“But, since yield of fixed income securities are expected to go down with the expected cuts in policy rates, companies planning to go public now have a chance to compete with bonds,” he noted.
The Bangko Sentral ng Pilipinas is expected to cut policy rates by 50 to 75 basis points this year and by 100 basis points in 2025.
“If the rate goes down to five percent, that’s minus 1.5 percent, IPOs will have a fighting chance. Equities will become very interesting. It will be more convincing to do equities if the total decline in rates is 1.5 percent to 1.75 percent,” Francisco said.
Since rate cuts will be gradual, Francisco said there may be just two to three firms braving the IPO market in the first half of 2025 with the rest coming in later next year when the policy rate has been slashed further.
The firms hoping to launch IPOs next year include those engaged in real estate, consumer, retail, food manufacturing and food service businesses, said Francisco noting that the food business is doing very well.
However, he said most of these IPOs will be smaller firms offering their shares only in the domestic capital market since larger IPOs, those worth more than P5 billion, will require an international offering and the overseas market is more competitive and requires a premium or bigger yields.
The PSE haD set a target of six IPOs that will raise about P175 billion this year but, so far, only three companies have gone public: NexGen Energy Corporation, OceanaGold Philippines Inc. and Citicore Renewable Energy Corp.
Last year, the PSE saw three IPOs, down from nine in 2022, the most number of IPOs in a single year since 2007.
The giant IPOs of Enrique Razon’s Prime Infrastructure, SM Prime Holdings’ real estate invetment trust, and Ayala-backed e-wallet pioneer GCash have all been deferred and are unlikely to take place next year.