Heady days give way to caution for Asian IPOs
Sundeep Tucker | Sunday, 29 June 2008
AFTER last year's rush of initial public offerings (IPOs) in Asia the slowdown has come.
In 2007, China's domestic exchanges and Hong Kong raised a combined $101bn, with other regional bourses adding a further $25bn.
This year, however, has seen a somewhat quieter first half with Asia Pacific, excluding Japan but including Chinese A-shares, raising $25.5bn, according to Dealogic, the data provider.
The impact of the global credit crunch and rising commodity prices as well as worries over the US economic outlook have hit the region's markets hard, with the volatility denting investor confidence.
Stock prices in China have tumbled by more than 50 per cent this year, forcing countless potential issuers to shelve plans to list.
India's market virtually closed to listings in January after the subdued performance of the $3.0bn IPO of Reliance Power, the country's largest ever offering.
Among those to have withdrawn listing plans this year are Evergrande, a real estate company seeking a $1.7bn listing in Hong Kong, and Emaar MGF Land, which was seeking to raise a similar amount in India.
Australia has seen just $92m in IPO issuance so far in 2008, against $6.2bn for the whole of 2007.
However, if market conditions improve then Asia Pacific, excluding Japan, could yet host $70bn worth of IPOs in the second half of the year, according to bankers and analysts.
Alex Woodthorpe, head of Pacific Rim equity capital markets for Merrill Lynch, forecasts that there is up to $50bn of IPO issuance - excluding Chinese A-shares - in the pipeline across the region.
"There is a strong pipeline across the street [investment banks] but much of it is getting well seasoned," Mr Woodthorpe says.
"Providing the markets are stable, then from September onwards investors will come back to take a look at good plays," he adds.
Gokul Laroia, Asia head of global capital markets for Morgan Stanley, believes that up to $30bn of IPOs (excluding A-shares) could hit the markets in the second half of the year if there is positive economic news flow - though he notes that inflation is a particular concern.
"There is no shortage of cash waiting to find its way into the market," says Mr Laroia.
"Even with current investor caution, the right story in the right sector with the right valuation can achieve a successful listing."
Mainland Chinese companies wanting to list in Hong Kong remain the largest single group in the region primed to join the stock market.
But investor caution will be hard to shift. H-share offerings this year in Hong Kong are down an average of 12 per cent, a far cry from the heady days of 2006 and 2007 when punters expected to double their money on first-day dealings.
Jing Ulrich, chairman of China markets at JPMorgan, remains optimistic that a further $20bn worth of A-shares could be raised this year on mainland exchanges - on top of the $12bn in the first half.
Scores of mainland Chinese private companies, in sectors such as real estate and retail, are awaiting regulatory clearance to list, while Beijing is also holding back the privatisation of large state-owned enterprises in the banking, transport and utility sectors until sentiment improves.
Bankers at UBS, one of the few global firms able to underwrite A-share offerings, also believe that IPO issuance should recover before the year end.
Steven Barg, head of global capital markets in Asia for UBS, said stable markets would return.
This would permit fast-growing Asian companies to access capital.
He adds: "Will that equilibrium [in the markets] return in the third quarter? Hopefully, but I am confident that it will return by the fourth quarter."
FT Syndication Service
In 2007, China's domestic exchanges and Hong Kong raised a combined $101bn, with other regional bourses adding a further $25bn.
This year, however, has seen a somewhat quieter first half with Asia Pacific, excluding Japan but including Chinese A-shares, raising $25.5bn, according to Dealogic, the data provider.
The impact of the global credit crunch and rising commodity prices as well as worries over the US economic outlook have hit the region's markets hard, with the volatility denting investor confidence.
Stock prices in China have tumbled by more than 50 per cent this year, forcing countless potential issuers to shelve plans to list.
India's market virtually closed to listings in January after the subdued performance of the $3.0bn IPO of Reliance Power, the country's largest ever offering.
Among those to have withdrawn listing plans this year are Evergrande, a real estate company seeking a $1.7bn listing in Hong Kong, and Emaar MGF Land, which was seeking to raise a similar amount in India.
Australia has seen just $92m in IPO issuance so far in 2008, against $6.2bn for the whole of 2007.
However, if market conditions improve then Asia Pacific, excluding Japan, could yet host $70bn worth of IPOs in the second half of the year, according to bankers and analysts.
Alex Woodthorpe, head of Pacific Rim equity capital markets for Merrill Lynch, forecasts that there is up to $50bn of IPO issuance - excluding Chinese A-shares - in the pipeline across the region.
"There is a strong pipeline across the street [investment banks] but much of it is getting well seasoned," Mr Woodthorpe says.
"Providing the markets are stable, then from September onwards investors will come back to take a look at good plays," he adds.
Gokul Laroia, Asia head of global capital markets for Morgan Stanley, believes that up to $30bn of IPOs (excluding A-shares) could hit the markets in the second half of the year if there is positive economic news flow - though he notes that inflation is a particular concern.
"There is no shortage of cash waiting to find its way into the market," says Mr Laroia.
"Even with current investor caution, the right story in the right sector with the right valuation can achieve a successful listing."
Mainland Chinese companies wanting to list in Hong Kong remain the largest single group in the region primed to join the stock market.
But investor caution will be hard to shift. H-share offerings this year in Hong Kong are down an average of 12 per cent, a far cry from the heady days of 2006 and 2007 when punters expected to double their money on first-day dealings.
Jing Ulrich, chairman of China markets at JPMorgan, remains optimistic that a further $20bn worth of A-shares could be raised this year on mainland exchanges - on top of the $12bn in the first half.
Scores of mainland Chinese private companies, in sectors such as real estate and retail, are awaiting regulatory clearance to list, while Beijing is also holding back the privatisation of large state-owned enterprises in the banking, transport and utility sectors until sentiment improves.
Bankers at UBS, one of the few global firms able to underwrite A-share offerings, also believe that IPO issuance should recover before the year end.
Steven Barg, head of global capital markets in Asia for UBS, said stable markets would return.
This would permit fast-growing Asian companies to access capital.
He adds: "Will that equilibrium [in the markets] return in the third quarter? Hopefully, but I am confident that it will return by the fourth quarter."
FT Syndication Service