Drivers at the Indianapolis Speedway, a senior Hong Kong-based capital markets banker told Euromoney recently, are instructed when they spot a crash ahead to steer straight for that spot on the understanding that by the time they arrive the colliding cars will have moved. The same advice, the banker argued, ought to be given to companies in Asia trying to navigate financial markets. Those that were considering floating on the region’s exchanges earlier in 2009 should, while surveying the wreckage across Asia’s equity markets in the first quarter, have pushed ahead with public offering preparations so that when the time came they were ready. Instead they waited for a signal that things were improving – generally thought to be BBMG’s successful July IPO – before restarting preparations. The result is a glut of year-end deals that began this October, almost exactly three months after the BBMG deal or about the amount of time it takes to get an initial offering from idea to final execution.
The $2.5 billion IPO of the Macau casino operation Sands China on November 23 was, according to Bloomberg, the 16th IPO to be launched on the Hong Kong Stock Exchange since October 1. Over $80 billion has been raised in that period, as against $102 billion for the first three quarters of the year combined. A closer look, however, reveals that Asia’s equity investors are increasingly sceptical as the glut of year-end deals begins to test their patience.
The Sands China deal priced at the low end of the expected range, with the total raised being some way off the $3.5 billion upper expectation, and the shares have performed sluggishly since. Rival Wynn Macau had an arguably stronger debut back on October 9, raising the equivalent of $1.63 billion at a price nearer the top of the indicated range, but has also struggled since then.
It appears that Hong Kong’s retail investors in particular – famed for their enthusiasm for new shares, which they sell on quickly for reliable profits – are growing more selective as the surfeit of supply continues. While they still flocked to China Minsheng Bank’s $3.86 billion deal, for example, covering the retail tranche more than 150 times, the casino deals had a harder time attracting retail interest. Investors have also shown themselves more discerning on price: Metallurgical Corp of China fell 13% on its September 23 debut, with market participants commenting at the time that the deal felt overpriced.
Equity capital markets bankers in Hong Kong are both surprised and delighted; with bonus season approaching, it can be no bad thing to be breaking the modest budgets set at the start of the year and recording near-2007 levels of IPO-derived revenues. The bunching of deals is not their fault, they say: they have been telling clients to get prepared since early this year but only a few listened.
Regardless of blame, this year-end bunching of deals has resulted in some less than stellar debuts. While Asia’s equity investors have gone from exuberant in 2007 to merely enthusiastic in 2009, their pockets are not infinitely deep. With Japan’s biggest banking groups and several of China’s leading financial institutions reportedly likely to seek fresh capital in the near future, issuers will have to work harder than they have in the past 18 months to husband the capital they have and time their demands for money they need. So far there have been disappointments but no outright disasters in the busy round of year-end cash calls; the first half of 2010 will by most accounts be just as busy, and ill-prepared CFOs might find themselves on a collision course.
