Asian stocks bounced back in the first quarter, but the appetite for initial public offerings did not.
IPOs in the region are heading for the quietest quarter in three years, set for only $8.8 billion in value raised. That’s down more than 40 per cent from the first quarter of 2018, according to data compiled by Bloomberg. Some companies shelved their deals altogether — Korea Retail Home Plus REIT 1 and Hong Kong’s Sun Car Insurance Agency Co. are among those that did so this month.
“Given poor fourth-quarter stock performances in Asia last year, deals were put on hold and issuers are taking a wait-and-see stance,” said Christopher Wong, head of Asia Pacific equity capital markets at BNP Paribas SA. “Timing is also impacted by a valuation mismatch between what the issuer desires and what the market can accept.”
Never mind that the market has rebounded — the MSCI Asia Pacific Index has climbed more than 8.5 per cent this year. Concerns over a slowdown in the global economy and stock volatility have weighed on sentiment. More than 160 will have started trading on Asian exchanges in the first quarter by the end of Friday, compared with 249 in the same period last year.
“There is a time lag before market conditions get reflected as it takes time to list a company,” said Johanne Dessard, director of private-equity practice at Bain & Co. “It is hence not surprising to see that a high degree of instability late last year is having a negative impact on the first quarter this year.”
Still, with the market recovering — the Shanghai Composite Index went from being the worst-performing major stock gauge in 2018 to the best in 2019 — many expect an improvement on the deals front in Asia, especially when it comes to China and Hong Kong.
“Overall, we are positive on IPOs of the A-share market and expect to see higher volume and bigger deals,” said Paul Lau, head of capital markets at KPMG China. He cited “positive impact” from the new tech board in Shanghai and listing regime for biotech firms in Hong Kong.
BNP’s Wong sees more equity-linked deals from state-owned enterprises in greater China as they seek to deleverage. He expects the bigger transactions to come from US-listed Chinese telecom and media companies aiming to grow or from smaller firms that went public in the past couple of years that want to improve market liquidity and valuations.
“As markets start to stabilise with the Fed now being rates neutral for this year, there is a good chance that we will see deal flows gradually pick up in the second quarter,” Wong said. “There will be more opportunities for early-stage companies to get listed, either in the tech board in China or in Hong Kong.”