According to Reuters, Southeast Asia’s biggest Initial Public Offering (IPO) on the 25th of July did not go as planned. The Thai Life IPO debut ended the day 0.62% below the share offer price after rising 0.63% at the start. Thai Life Insurance (TLI) sold 2.3 billion shares, raising about USD $1 billion. Regulatory filings showed that half of the funds came from investors who bought the shares before the company went public.

Speaking to Reuters, analysts said the flat opening reflected high valuation and broader market performance. Aequitas Research director, Sumeet Singh, said the shares would probably head lower because the insurance firm’s past growth record could not justify trading higher than its embedded value. According to its financial accounts, it declined 0.69% in 2020 and grew a meagre 1.49% in 2021 despite many industries rebounding after the COVID-19 economic shutdowns.

What is happening in the Thailand startup ecosystem?

The Southeast Asia IPO trends mirror international trends, with data from Bloomberg showing that the global IPO deal volume was 70% lower than in the first quarter (Q1) of 2021. Analytics firm Coalition Greenwich said there was no doubt the equity capital markets would decline in 2022, but the best-case scenario was for the dip to be 30%, though it could go over 50%.

IPO struggles in Southeast Asia and worldwide

According to a July press release from Ernst & Young (EY), Asia-Pacific (APAC) recorded 181 IPO deals and proceeds of USD $23.3 billion in Q2, a 37% volume dip and a 42% proceeds decline from last year’s Q2. The Association of Southeast Nations (ASEAN) has accounted for 54 IPO deals in 2022 that only raised USD $2.4 billion, a 55% year-on-year (YOY) dip in proceeds. 

Furthermore, there has been a lack of mega IPOs—over USD $1 billion in proceeds—compared to three last year. Thailand has the second-most active stock exchange in ASEAN behind Indonesia, securing 13 IPO deals worth USD $0.3 billion.

Dismal IPO performances may result from dull market listings, deal delays, market volatility, decreased investor interest, and fears over tighter monetary policies. China’s regulatory actions to rein in tech giants like Alibaba have also affected APAC nations. The delisting of Chinese companies in the US stock market, the potential invasion of Taiwan, unilaterally taking over Hong Kong, and the geopolitical tension the country has caused in APAC have added to the current uninviting investor climate.

The decline in IPO deals has been attributed to factors like COVID-19 restrictions, US-China tensions, the Russia-Ukraine war, and rising inflation rates, according to Ringo Choi, EY Asia-Pacific IPO Leader. Regardless, he was optimistic that APAC could end the year well as China’s regulatory actions change and the region becomes more active in investments and IPO activity.

Another issue that has contributed to the dip in IPO performance has been the reduced impact of Special Purpose Acquisition Companies (SPACs). SPACs are shell companies that merge with other businesses to enable them to list on the stock market. Thus far, there have been very few SPACs in Q1, 2022.

According to Mirabaud Equity Research, the recent market volatility in the US over the last few years has led to caution in Asia’s SPAC environment. The current approach is “slow and steady”, according to Neil Camping, the head of technology. 

What does this mean for Southeast Asia as a startup hub?

Looking back to 2021’s record-breaking performance may shed light on what Southeast Asia can learn from the current discouraging IPO results. According to financial services and advisory firm Deloitte, 95% of the total funds raised across Southeast Asia in 2021 occurred in Thailand, Indonesia, and the Philippines, pushing proceeds to the highest level in five years. Capital markets recorded robust IPO activity for the first ten and a half months last year, raising USD $9.8 billion from 121 IPOs.

Despite the ongoing COVID-19 pandemic, there were 6% more IPOs in 2021, and the total amount raised increased by 39% from 2020. 

For the third consecutive year in ASEAN, Thailand raised the highest funds from IPOs in 2021. According to the Deloitte report, this upswing was fuelled by a stable economy, robust currency, consistent domestic liquidity, and low-interest rates. The IPOs on offer were also attractive to investors because they were from diverse industries. 

The unexpected challenges that are currently affecting the world, such as war, should be considered when analysing the Thai Life IPO debut. Because of this, Southeast Asia IPO trends may not be appealing for the rest of the year, but some changes can make a difference.

Paul Go, EY Global IPO Leader, said investors will now focus on a company’s fundamentals, resilience, profitable growth, and ability to embed ESG (Environmental, Social and Governance) principles as part of their core values before investing.