Wednesday, 9 September 2009

Surge in IPOs as Asian market recovery picks up speed

China, Hong Kong issues lead rush, with real estate, consumer-driven plays

Asia’s initial public offering market is booming as economies inch out of recession and equity markets improve, setting the scene for the region to emerge as the world’s top spot for firms rushing to raise money.

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Guanyu said...

Surge in IPOs as Asian market recovery picks up speed

China, Hong Kong issues lead rush, with real estate, consumer-driven plays

Reuters
08 September 2009

(SYDNEY) Asia’s initial public offering market is booming as economies inch out of recession and equity markets improve, setting the scene for the region to emerge as the world’s top spot for firms rushing to raise money.

But unlike the last Asian IPO boom two years ago, industry sources say tight pricing is key for companies to avoid a sell-off, especially as the economic climate remains uncertain.

From Australia’s top department store Myer Group to Hong Kong-based pharmaceuticals retailer Sinopharm Group, companies are expediting listing plans as IPO markets open up after a two-year hiatus caused by the global financial crisis.

‘There is definitely appetite for the right deal, people are looking to places to park cash as cash has been building up,’ said Frank Villante, Sydney-based chief investment officer with Souls Funds Management.

Mr. Villante said it was essential that companies price their issues attractively to generate strong demand for the offers.

China is leading the rush in the region’s IPOs, mainly after new rules allowed listings to resume after a ten-month break. Australia, India and South Korea are seeing a pick-up, but nowhere near the flurry of deals in Hong Kong and mainland China.

Another reason why the number of new issues from China is surging is that pre-IPO investors such as hedge funds and banks finally see an opportunity to exit while the markets are up.

While some of the early offers such as China State Construction Engineering Corp’s US$7.3 billion IPO, the world’s largest this year, made a stronger-than-expected debut in July, others have had a less than spectacular start.

Chinese real estate firms are prominent among the wave of IPO hopefuls as private equity and hedge fund backers rush to exit in an improved market after missing out last year. But bankers say it’s unlikely all IPOs in the group will be welcomed by investors.

China’s main Shanghai bourse jumped 87 per cent between January and the end of July. But it fell 22 per cent in August, fuelling speculation the regulator could either halt or slow down the number of new offerings in the next few months.

The resurgence in listings across sectors means more business for investment banks busy lining up new equity for Asian corporates to help pay down their debts.

‘There is a lot of supply but in an environment of slower global growth, Asia continues to offer some of the most attractive investment opportunities,’ said Justin Haik, Morgan Stanley’s head of Asia Pacific equity syndicate. ‘We see substantial capacity to absorb these offerings.’ He estimated the immediate Hong Kong pipeline at about US$10 billion-US$15 billion of equity offerings from now until December.

In Australia, IPOs could raise up to US$5 billion by the end of 2009, while the South Korean tally just in September is expected to about US$1 billion.

Guanyu said...

‘Many of these companies are now at a stage where they need growth capital,’ Mr. Haik added.

The IPO rush is also picking up in other regions.

Last week, Banco Santander SA, the Brazilian unit of Spain’s Santander, filed for an initial public offering in Brazil and the United States, in what could become one of the largest IPOs of the year, pegged at about US$5.6 billion.

In Asia, consumer-driven sectors such as retail are seen in good demand, while property offers could suffer, some bankers say.

Consumer-led sectors in the region have benefited from government stimulus packages in countries including Australia, China and South Korea. That has encouraged retailers such as TPG-owned Myer Group to float the business.

‘Many of the portfolio companies owned by private equity have a retail or consumer bias to them so they would probably tend to dominate the first few issues,’ said Simon Cox, managing director of the Australian unit of UBS.

In India, where infrastructure is a chronic problem, IPOs have raised about US$10 billion so far in 2009, with state-owned and shipyard companies dominating the issuances.

‘We clearly are in a period of economic recovery and typically it’s the time when we see the IPO market being tested. But the IPO market doesn’t really pull into full throttle until we see the economy motoring along,’ Mr. Cox added.

Still, the euphoria in China is not shared by the rest of the region as bankers say companies’ earnings outlook is still clouded by economic uncertainties.

‘Our view is there are actually not a lot of things that can come in the short term,’ said Michael Everett, managing director of the Australian unit of Goldman Sachs.

‘But as 2010 rolls on and as visibility of outlook improves, you will have more companies going to the market,’ he added.

But there is growing expectation that new offers should be priced at a decent discount to attract investors, following the deep discounts offered in the recent rush of rights and share placements across Asia.

‘One assumes that with IPO, many vendors are not prepared to offer equity at deep discount and therefore the appetite for the market is really untested,’ UBS’s Mr. Cox added.