By Duruthu Edirimuni Chandrasekera
Suspended Initial Public Offering (IPO)s are being reactivated this year due to improved macro-economic conditions, a stark contrast to last year’s thinning IPO appetite, analysts say.
“Last year most companies were shelving their IPO and many increasingly were opting for mergers and acquisitions (M&A) under trying economic conditions with owners of more than 10 firms selling them and opting out of business, but now the situation is changing,” an analyst told the Business Times.
The analyst said that during the last six months, some companies specialising in M&A had completed about 10 M&A – all of which are firms that are unlisted.
“At the time we focused more on M&A in listed companies,” he added. He noted that while this year there’s appetite for M&A as well as some firms see the business sense merging with or acquiring companies, some who said that they won’t list publicly are rethinking their decisions. “It’s interesting that the IPOs that were put on hold are getting rejuvenated,” he said.
A director of a company specialising in M&A noted that last year most firms shelved their IPOs due to the global crisis.
The official said that about seven IPOs at the time were stopped temporarily. “All these were worth some Rs. 400 million,” he added. He also said that the Sri Lankan economy has bounced back strongly in the aftermath of the three decades-long war and that this has created ample opportunities for the private sector whilst the government has initiated a massive infrastructure development plan which includes the development of roads, highways, sea and air ports and power. He said that with easing interest rates and funds moving into equity, IPOs now have a better chance.
“The private sector is expected to play a vital role in the development process and that the corporate sector would need huge capital investments that cannot be financed by traditional forms of bank borrowings.”
He added that such projects would require different types/sources and there would be an enhanced level of activity in the areas of mergers and acquisitions and financial restructuring.
“Sri Lankan entrepreneurs would be seeking joint ventures with regional and global players and risk management and mitigation products as the scale and complexity of businesses grow giving ample opportunities for credible investment banking service providers.”