During the last week there have been multiple primary market equity developments, which are giving quite mixed indicators.

This week's dealflow includes two clear successes in Chile and Brazil, a poor reception for a large coal-sector deal in Australia and the withdrawal of two rare IPOs in Mexico. In the week to 19 October, two planned IPOs in the US were postponed outright: five of the seven remaining offerings discounted pricing with two cutting pricing levels over 50%.

Chile's leading retailer Falabella, which recently acquired Linio, a Latin American on-line vendor for USD138 million, sold USD550 million of equity. It captured impressive demand of USD3 billion with 58% placed internationally. The offering funds its purchase of Lineo, an on-line vendor, for USD138 million and provides resources for further e-commerce investments, while also including a secondary sale by investment group Inversiones Los Olivos. According to Gestión website, Falabella plans to use some proceeds to develop IKEA franchises in Chile, Colombia and Peru.

Another success was a USD1.1 billion NASDAQ sale for StoneCo, a Brazilian payment processing company. Berkshire Hathaway provided an anchor order worth almost one-third of the offering. Ant Financial also sought USD100 million, and the deal has been accelerated given strong demand.

By contrast, Australia's Coronado Coal experienced a difficult IPO. Its deal was reduced in size and priced at the bottom of its AUD4-4.80 range, raising AUD774 million (USD550 million), versus an initial objective of up to AUD1.39 billion. Despite the scale-back, on 23 October, it traded to a first day discount of 10%. Domestic fund managers reportedly hesitated to take additional exposure to coal production, with additional concerns over falling Chinese demand and the company's valuation.

Two rare Mexican IPOs were pulled outright. Grupo Financiero Mifel, a mid-sized Mexican bank had planned an IPO for up to MXP8 billion (USD425 million) of shares. On 17 October, the deal was withdrawn due to market conditions. The second Mexican cancellation was by family-owned Grupo Coppel, which operates some 1400 stores. 80% of its sales are funded by credit, offered through a bank subsidiary, BanCoppel. When initially reported in June 2018, its flotation had been expected to raise up to USD2 billion equivalent. According to Reuters reports, the delay reflected a family disagreement.

There are several interesting deals pending. Khazak uranium producer Kazatomprom, which claims a 19.4% share in global uranium production, has confirmed its plans for a London-based IPO. It plans to sell 25% of its equity for up to USD1 billion, based on comparable sector valuations.

Qatar Aluminium Manufacturing Company, currently 100% owned by state-owned energy firm Qatar Petroleum, is planning a domestically-targeted flotation for 49% of its capital. The sale will be conducted through a two-week offer between 30 October and 12 November, restricted to Qatari citizens.

The Philippines market faces a significant test with the sale by San Miguel of shares in its food and beverage operations. The public offer runs from 22-29 October. The deal has already been substantially reduced: in a late August filing the company had filed to sell up to 1.02 billion shares at an indicative price of PHP 140 each to raise PHP142.8 billion. However, this was always hugely ambitious, as the unit's shares were trading at just PHP80 at that time. The revised offering is for 523 million shares at PHP85-95, plus a 15% green-shoe. Similarly, appetite for Indonesian risk is being tested with a capital increase by paper producer Fajar Surya. The company is sounding out investors over a rights issue for up to 495.6 million shares, equivalent to 17% of its expanded capital.

Outlook and Implications

This week's equity market developments indicate ample supply of potential new deals. After recent volatility, we assess vendors will want to advance share sales swiftly prior to any further market deterioration. The mixed range of responses to deals highlights the increased uncertainty, but also reflects distinct contributing factors including sector, pricing, and availability of strategic anchor investors. In many recent cases, potential deals appear to have been pulled once vendors realised that pricing has deteriorated significantly from the levels available earlier in 2018.

In many countries political risk factors, notably with regard to uncertainties over policy direction, are contributing to potentially-adverse stock-market movement. The persistent stock market weakness in China is significantly influenced by international trade conflicts, and their impact on likely economic and earnings growth trajectories. Elsewhere in Asia, greater difficulty in attracting portfolio inflows is encouraging a tighter monetary policy stance, with higher rates being used to attract foreign capital, but at the cost of slower growth prospects.

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