Southeast Asia deals on uncertain footing due to COVID-19 fallout but bright spots in health, e-commerce/tech, supply chains emerge

17 March 2020

Dealmaking in Southeast Asia, the first region to see the most COVID-19 infections after the Lunar New Year, has become murkier with fundraising and deal timetables up in the air amid volatility in the financial markets, according to industry advisors. However, bright spots in several regions are emerging from the commotion and dealmakers are taking note of these.

Dealmaking in Southeast Asia, the first region to see the most COVID-19 infections after the Lunar New Year, has become murkier with fundraising and deal timetables up in the air amid volatility in the financial markets, according to industry advisors. However, bright spots in several regions are emerging from the commotion and dealmakers are taking note of these.

 

Singapore

 

In Singapore, the hardest-hit businesses by the pandemic are retail, food and beverage (F&B), and hotels as it was among the first after China to hit the red button in terms of limiting human movement to stem the spread of the virus.

 

This news service reported, before Lunar New Year, that Eu Yan Sang, a Singapore-headquartered manufacturer and retailer of traditional Chinese medicine, may be seeking a sale. However, the process may be put on hold as the region reels from the economic effects of the pandemic, as reported by Reuters last month.

That said, deals in healthcare, education, and services are still ongoing or are still scheduled to be launched in 2Q20, according to advisors. The launches, however, will be slower than usual due to travel limitations and remote work arrangements, they said.

Certain sectors including data centers, digital healthcare, online education, e-commerce, and other technology providers that provide delivery of these services are also faring well, the advisors noted.

Singapore-based online retail cashback firm Shopback just raised USD 30m in a funding round led by Temasek, with Rakuten [TYO:4755], EV GrowthCornerstone Ventures, EDBI and 33 Capital joining the round.

Meanwhile, traditional industries such as manufacturing and construction need to reduce their reliance on labor and adopt a smart/automation approach to better manage the risks of a similar labor shortfall in the future due to quarantine and immigration control, the advisors said. There are opportunities for investors to provide funding for the upgrade of these businesses, they noted, adding that upgrades may be necessary to support business supply chain diversification, so firms do not rely on a few geographies for procurement of key resources.

 

Thailand

 

This global supply chain disruption is a bright spot for Thailand as international companies have been searching for other locations outside China as alternative manufacturing hubs, or for diversification of their supply chains. According to Country Group Securities Managing Director Ashwani Ahuja, there has been a rise in inquiries in the last two months from companies looking to make direct investments/to acquire companies related to supply chains in Thailand. Companies that have been inquiring about investment opportunities belong to these sectors: medical equipment, sportswear, furniture, food additives manufacturing, food processing, and pharmaceutical.

Meanwhile, hotel and tourism-related businesses are bearing the brunt of the COVID-19 fallout but this will give rise to buying opportunities as there are more inquiries for boutique hotels that may be up for sale, Ahuja said. E-commerce retailers and logistics firms that provide home deliveries are doing well during this pandemic as people tend to avoid commuting as much as they can, he added.

The National Economic and Social Development Council (NESDC), the Thai government’s economic planning agency, last month projected Thailand’s 2020 GDP growth would slow to between 1.5% and 2.5%, from 2.4% last year. Kasikornbank, Thailand’s largest commercial bank, even projected growth would be at a paltry 0.5% given that the COVID-19 outbreak has affected major contributors to the economy. Prasert Tantayawit, managing director at Maybank Kim Eng Securities (Thailand)’s Investment Banking Department, said it was likely all or almost all IPOs would be delayed.

 

Philippines

The country’s National Capital Region, which contributes about 40% of national GDP, is on a lockdown that started midnight of 15 March. Several provinces outside Metro Manila implemented their own lockdowns to contain the spread of the virus, further curtailing commerce. The pandemic could cut the country’s growth to 5.7%, much slower than the government target of 6.5% to 7.5%, according to New York-based think tank, Global Source.

All businesses nationwide are disrupted and tourism and allied services such as aviation, hotels, malls, restaurants, entertainment, ports, and logistics are now taking a beating from this pandemic, First Metro Investment Vice President Cristina Ulang said. Margin compression may also temporarily dent cash flow predictability and weaken debt service coverage ratios, she added.

RCBC Capital President, Jose Luis Gomez, said the general slowdown in economic activity could reduce the need for more borrowing despite rates being generally more favorable to borrowers. Nevertheless, companies could lean more on private transactions due to negative capital market sentiment. Imperial Homes is delaying its IPO because of the stock market rout, while Philex Mining is facing a delay in the stake sale of its subsidiary, Silangan Mindanao Mining, due to the pandemic, since its suitors are Chinese strategics.

 

According to PNB Securities President Manuel Lisbona, the least affected by the pandemic in the early days of the lockdown are the following:

 

  • Telecommunications – due to increased need for telco/connectivity/bandwidth services for both business and individual communication;
  • Consumer – on back of consumer stockpiling; local producers of foodstuff will be in less supply risk than those who import;
  • Power – decline in demand for industrial use will be at least partially offset by increased demand from residential consumption; power producers with renewable or local fuel sources are to be favored by investors; lower oil prices should likewise be favorable, but how to get the oil is the question.

 

Ulang of First Metro said healthcare services and healthcare products, pharmaceuticals, hospital equipment and supplies are investment opportunities. The chemical industry – if they are able to gear up production capacity to deliver products needed for COVID-19 prevention – are also doing well these days, the executive noted.

Philippines-based mobile healthcare platform AIDE has gained a lot of traction because of the COVID-19 pandemic despite zero marketing. Despite its pricey services, it has now become a need because everyone wants to be treated at home and their medicines delivered as Metro Manila will remain in lockdown for a month, co-founder and CEO Paolo Bugayong told this news service. The company, which counts Ayala Healthcare Holdings as one if its investors, may launch another round of fundraise in the next six to 12 months, he said.

 

Malaysia

Meanwhile, Malaysia is facing several headwinds aside from COVID-19, such as the collapse in oil prices and political uncertainties due to the recent change in the federal government. Many fundraising and M&A plans have been put on hold and IPO activities are not expected to pick up again until the latter part of 2H20, said Peter Lim, deputy managing director of SJ Securities. It will take at least a few months for the new administration under Muhyiddin Yassin to set the agenda and for investors to understand the risks to planned projects and direction of the government.

 

Among the IPOs that was reportedly being delayed include the local listing of home improvement chain Mr DIY that was supposed to take place within 1H20.

 

Maybank Investment Bank’s Managing Director & Head of Regional Equity Capital Markets, Ramesh Manimekalanandan, said the bearish market condition is may be prolonged as the market seems to be pricing in the worst case scenarios. Conditions may stabilize once the spread of COVID-19 pandemic decelerates, oil prices find a floor, and the new Malaysian government commences policy implementation, he said.

 

The COVID-19 pandemic’s effect on China’s economy will continue to spill over to Malaysia in 1H20 through a decline in tourist arrivals, household spending, and varying degrees of supply chain disruptions. Economic growth in Malaysia is expected to slow to 3.7% in 2020.

 

One bright spot amid the current market downturn is Malaysian rubber glove manufacturing. Rubber glove producers are experiencing higher demand from abroad due to the COVID-19 pandemic and weak MYR against the USD, said Affin Hwang Investment Bank in a recent note to investors. The unabated worldwide spread of COVID-19 with more countries affected and new hotspots emerging such as Italy and Iran, has led to the WHO advising the world community to beef up their healthcare supplies, according to Affin Hwang Investment Bank.

 

Indonesia

Indonesia, reliant on commodities trading and manufacturing, has also seen tourism hit by the COVID-19 pandemic. It is set to review its GDP forecast of 5.0%-5.4% for 2020, as announced in February. As such, companies are facing delays in their fundraising plans, Andy Bratamihardja, director of investment banking with Mandiri Sekuritas said. The delay is dependent on when the virus spread can be contained.

Indonesia state-owned railway-integrated property developer Adhi Commuter Properti aims to launch an IPO in October this year but the timetable could be affected by the ongoing coronavirus outbreak as stock market indices are going south amid uncertainties, as reported by this news service.

Brilliant Ecommerce Berjaya, the Indonesian operator of business-to-business (B2B) e-procurement marketplace provider Mbiz, may see its fundraising process slowed down by the COVID-19 outbreak since bankers/fund managers from outside Indonesia would not be allowed to travel by their companies to conduct due diligence, CEO Rizal Paramarta told this news service. The company had kicked off a USD 20m fundraise round this month, as reported.

Harry Su, managing director, head of equity capital markets at Samuel International, said that hospital and healthcare-related sectors (gloves and medical supplies) are attractive for investment. Bayu Yudianala, M&A advisor at Concord Ventures, said that technology, especially those related to work-from-home tech, telco, pharmaceutical, and fintech are also some of the bright spots for investors in Indonesia.

 

Vietnam

Tourism/hospitality, and education sectors are the most affected by the pandemic as these saw the most number of shutdowns and are bearing losses, an advisor said. As reported by local media, Vietnam tourism could lose as much as USD 5bn due to COVID-19.

 

Due to the economic toll, many fundraising and M&A transactions have been put on hold since dealmakers are not able to meet investors who cannot travel into the country. Some of them needed to fly to Hong Kong or Singapore so that negotiations can continue, a Vietnam-based advisor said. It was initially thought the COVID-19 would slow down but it seems the pandemic will be prolonged. Therefore, many are utilizing virtual data rooms to conduct due diligence or video conferences. The situation right now is more about preparation now while waiting for the market to improve, the advisor said.

 

Despite the gloomy outlook, there are investment opportunities in traditional industries such as textiles, footwear, and seafood exports as trade links between Vietnam and China have been temporarily suspended due to the pandemic. The advisor said there will be opportunities coming up in support of business supply chain diversification/new market expansion for traditional businesses to curb the effects of the pandemic.

 

Other bright spots are healthcare services and healthcare products, e-commerce, fintech, and consumer, mainly due to hoarding and demand for cashless payment. Meanwhile, deals in renewable energy, retail, and healthcare are still ongoing or are still scheduled to be continued/ launched in 2H20, Vietnam-based advisors said.

 

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