Author: Wilasinee Krishnamra
Country Leader | Disruptive Event Advisory
Contributor: Chodok Panyavaranant, Ph.D.
Manager | Clients & Industries
IPO Situation in SEA and Thailand
Initial Public Offering (IPO) is a process to offer shares of a private corporation to the public in a new stock issuance. Many companies see the IPO as one of the finish lines in creating growth and sustainability for the organization. The current situation in Southeast Asia shows that the number of companies registered for IPOs has increased since 2016, and 2021 was a year of the highest market capitalization and highest amount of raise in history1.
When looking at the IPO situation in Thailand, companies entering IPO in Thailand have received significant attention from investors because they can raise funds higher than other countries in the SEA region. Thailand narrowly missed out top spot in 2021, coming in a close second behind Indonesia. A stable economy, strong currency, low interest rates and consistently strong domestic liquidity contributed to the Thai bourse raising US$4.4 billion in IPO proceeds, topping their performance in 2020. For example, in 2020, the consumer product business group was the group that raised the most funds, and in 2021, it changed to the energy business2, etc. The trending business group is the technology business, which has continuously grown in popularity in the last few years3.
Bringing companies to raise funds in the stock market seems to gain attention from private companies continuously. The question you should know is, what's the benefit of doing it?
Advantages of IPO: We have four main areas that the company can benefit from the IPO, which are:
Financial: when private companies can go to IPO, they will have access to has been able to systematically access investments in significant equity capital, both raising funds at IPO and through secondary fundraisings. The company will receive support growth stories and acquisitions.
Liquidity: A company that has entered an IPO has a shareholder liquidity event that allows the founder and the first investor to withdraw some or all of their ownership shares. The company stocks can be traded with the bid price and expand the volume and shareholders' diversity.
The profile: Once a company can enter IPO are equal to passing various requirements. It reflects their management potential with customers, suppliers, and employees. It also heightened media and public profile and has the potential for more favorable commercial terms. The company will enhance relationships with key stakeholders. Lastly, the SEC will recognize the company as a listed company.
Incentivization: The critical thing is an opportunity to develop employee and executive remuneration schemes and improve the business's financial reporting. It also enables the offer of share option incentives and realizable rewards based on performance that develops personnel and management with transparency. It will be a factor that attracts talented people to join the company.
However, there will be several challenges to consider in parallel once there are advantages.
Challenges of IPO It can be divided into five main areas as follows:
Scrutiny: Companies that go through the IPO will gain public attention, increasing public scrutiny, and participation, including shareholders, analysts, and regulators. So, the company management has to, directly and indirectly, enrich responsibility to comply with regulatory listing rules, takeover code, corporate governance from policy formulation to relevant business processes, and high level of disclosure and ongoing requirements post a listing.
Costs: One-off fees for the IPO, with increased ongoing costs post listing, also include constraints on management's and finance team's time.
Change of control: Some original owners might concern about this change. The IPO will open up opportunities for unwelcome investors and deprive the founders of the same control as before. There is also the issue of accountability to external shareholders that need another focus.
The last point, Are you suitable?: There are other conditions to consider when entering an IPO. Since the determination of 25% of shares in public hands at minimum. Three years audited historical financial information. And appropriate financial reporting procedures for a listed company.
Challenges can be a problem if a company has insufficient know-how; however, there is a solution for independent advisors to help. Let's look at the last section below.
What does the independent advisor do? There will be four prominent roles:
Review of options: The advisor will come in to do a Feasibility assessment, look for critical paths, conduct Structural considerations, and understand the key messages to portray the stakeholders.
Pre-IPO preparation: The advisor will assist in identifying and addressing necessary commercial and technical aspects, support management with financial projections and work capital requirements, including advising on corporate governance and contingency planning.
IPO execution: Advisors will administer the IPO project and set the transaction timetable, helping to select the wider advisory team, agree on key terms of engagement, and advise on the IPO documentation.
Post-IPO: After the IPO process, the advisor can also assist with ongoing strategic, financing, and M&A advice free from conflicts of interest, including sounding board for advice from the bank/broker and educating directors and management on critical topics.
IPO is a journey that is continuity from preparation, filing, and maintaining systems to continue to move forward even after changing to a listed company. Each change path has its challenges, so having a clear understanding of the issues beforehand is an advantage. One can take full advantage of the IPO. so that the company can continue to grow steadily and sustainably.
1 Southeast Asia IPO capital market – Deloitte (2021)
2 The Stock Exchange of Thailand
3 The Stock Exchange of Thailand