Several successful IPOs in Hong Kong last month suggest that the oft- predicted but thus-far non-starting recovery in the primary equity market is at least tentatively under way.
So far this year, debt capital markets have been flying in Hong Kong and across the region whereas equity market bankers have had to rely on returns from follow-on offerings and block trades, to cope with an IPO market that has been stuttering at best. And even though some recent offerings have provided glimmers of hope, some lacklustre transactions continue to ensure that the mood across the region remains one of cautious optimism mixed with nagging doubt.
Doubts centre on an uncertain Chinese growth outlook and continuing concerns about Japan. Late last month, a flight from risky assets took place across the world’s stock markets. The sell-off was led by the Nikkei, which had previously been on a six-month winning streak.
Southeast Asia has been a bright spot in the region in terms of equity issuance so far this year, but there, too, concerns about longer-term prospects and corporate governance remain.
Two recent deals in particular were seen as important indicators and although both were unspectacular, investors took heart that they came to market solidly and without any glaringly negative headlines.
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| Galaxy HQ. The firm, China’s sixth-largest brokerage, raised $1.07 billion |
Sinopec Engineering, part of oil company China Petrochemical, raised $1.8 billion in the largest Hong Kong debut since People’s Insurance raised $3.6 billion last December. And the IPO of Galaxy Securities, China’s sixth-largest brokerage, raised $1.07 billion. Beyond Hong Kong, the market for IPOs has been slightly easier. In May, the record stock market debut of BTS Group Holdings in Thailand provided evidence that, for the right deal, investors have a healthy appetite. BTS, which operates the Bangkok SkyTrain, raised $2.1 billion, making it the largest IPO in the region this year to date. Deals have proved tricky to bring to market in recent months as companies and their advisers, wary of volatile equity markets fuelled by continuing geopolitical and macroeconomic uncertainty, have largely opted to postpone planned offerings until markets display lower volatility over a more prolonged period. The BTS deal was particularly encouraging given the stock’s performance on its first day of trading, when it rose by as much as 17.6%.
Cornerstone investors, which have been a feature of most recent IPOs in Asia Pacific, once again featured heavily on the BTS deal and several other prominent deals in the region. Opinion is divided about the benefit of such investors. The trend is for multiple bookrunners to provide investors that are a sure thing in return for a leading role on a given deal. It is akin to pay to play and is designed to soothe the concerns of companies worried about the reception they will receive on going public.
The problem is that cornerstone investors also provide an imperfect test of underlying investor appetite. The size of that appetite needs to be clear to foster the confidence needed to launch an equity deal that is truly reliant on investor demand. But given the relative scarcity of deals so far this year and the need for banks to bolster revenues, the increasing use of cornerstones has at least meant more deals have been done in recent weeks, alleviating at least some of the pressure on ECM desks.
The pipeline of deals in southeast Asia is particularly robust, but the Hong Kong pipeline – the main cause for concern recently – also looks to be relatively healthy. Deals from companies including China Guangfa Bank, Bank of Shanghai, Langham Hospitality, Hopewell Properties and New World Hotel Investments are expected to launch later this year. Now that some large companies have tested the water, confidence is high that other deals can proceed without fear of failure in the public market. Investor appetite for stock deals remains difficult to gauge, particularly as many deals are being sold on the back of cornerstone investors.
Separately, Asian Pay Television, an investment vehicle for Taiwan’s biggest cable TV operator, Taiwan Broadband Communications, priced its units at $0.78 each. The company raised $1.39 billion in Singapore’s second-largest IPO so far this year.
Meanwhile long-haul carrier AirAsia X, founded by entrepreneur Tony Fernandes, has set an indicative price of M$1.45 a share for an IPO in Malaysia worth more than $300 million.
The company and its shareholders are offering 790.1 million shares, with 75% of the offering coming from new shares, according to the terms seen earlier. The deal will be priced later this month, with a stock market debut due in early July.
CIMB, Credit Suisse, Maybank and Morgan Stanley were hired as joint global coordinators on the IPO.
Further success in block trading came last month as Goldman Sachs sold its remaining stake in Industrial & Commercial Bank of China for around $1.12 billion, exiting an investment it made in China’s biggest bank seven years ago.