Capital markets: Asia hits a bright spot after gloomy start
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Capital markets: Asia hits a bright spot after gloomy start

Flurry of deals pushed through; IPO revival ‘could be derailed’

A rush of dealsin Asia in recent weeks has raised hopes that the year, which had threatened to be characterized primarily by ailing or dormant equity capital markets, will end on an upbeat note.

The most recent flurry of deals has spanned the capital markets, with block equity trades, high-yield bond deals, M&A transactions and leveraged buyouts all being pushed through in the past month. Even the IPO market, which has been lukewarm at bestduring the year, is showing signs of heating up.

According to figures from Ernst & Young, during the third quarter Asia posted impressive performance, accounting for close to 80% of capital raised globally. This comes against the backdrop of uncertainty as a result of the crisis in the eurozone, instability in the Middle Eastand the looming US presidential election.

Of the top 10 global IPOs during the quarter, six were listed on Asian stock exchanges. Japan Airlines floated on the Tokyo Stock Exchange, raising $8.5 billion and making it the second-largest public stock listing of the year after Facebook. Malaysia’s IHH Healthcare staged a $2.1 billion debut on the Singapore Stock Exchange, while China’s Inner Mongolia Yitai Coal floated on the Hong Kong Stock Exchange, raising $900 million.

More recently, an investor consortium led by Chinese sovereign wealth fund China Investment Corporation (CIC), and including Boyu Capital, Citic Capital and China Development Bank (CDB), completed a privately negotiated agreement to acquire ordinary shares of Alibaba Group, China’s leading e-commerce company, at a valuation of around $40 billion.

Concurrently, as part of a previously announced agreement, Alibaba completed its initial repurchase of 523 million ordinary shares held by Yahoo at $13.54 per share for a total consideration of $7.1 billion.

In addition to the proceeds from the CIC consortium, Alibaba raised additional funds through $800 million in seller-preferred shares to Yahoo, $4 billion in senior debt facilities, and additional issuance of common shares and convertible shares.

This financing package is the largest private financing for a private-sector Chinese company, and the largest non-LBO private financing for a technology company globally. Citi acted as financial adviser to CIC on this transaction.

In other equity deals, Temasek Holdings, the Singaporean sovereign wealth fund, disposed of a 2.5% stake in Singapore Telecommunications, raising $1.28 billion, and GE Capital sold 7.6% of Thailand’s Bank of Ayudhya, netting $466 million.

For debt capital markets, issuance has been equally impressive. In September corporate bond sales for the year passed $100 billion – the first time since records began, according to Dealogic. High-yield bond issues from Chinese property developers such as Kaisa Group Holdings have been driving some of this.

A rush of deals in Asia in recent weeks has raised hopes that the year, which had threatened to be characterized primarily by ailing or dormant equity capital markets, will end on an upbeat note.

Of the overall uptick in activity, Chris Laskowski, chief operating officer at Citi’s investment bank in Hong Kong, says: "Things are getting surprisingly busy. People were starting to wonder if the IPO market was never coming back, given how quiet it has been. But, importantly, we have seen lots of high-yield bond deals recently and these are often a precursor to a reinvigorated IPO market." Laskowski adds that while the IPO market would not necessarily come roaring back on the wave of the recent activity, the uptick in blocks could serve to drive momentum, pointing out that the deals getting done now tend to be higher-quality and liquid assets.

He cautioned that any IPO revival could be derailed if a raft of low-quality companies decided to jump on the bandwagon, perform poorly in the after-market, and take any confidence that might have been built up out of the market.

Chart toppers Asia (ex Japan and Australasia) IB revenue ranking

Asia’s continuing appetite for raw materials for expansion means deals involving energy and natural resources have become the foundation of the M&A business in the region. The standout deal of the year is undoubtedly the proposed $15 billion purchase by China’s CNOOC of Nexen, a Canadian oil producer. In fact, the CNOOC deal, which has yet to close, was the only deal in the third quarter to surpass $10 billion globally. As a result, the investment-banking revenue league tables year to date make for interesting reading, with Credit Suisse narrowly taking the top spot from UBS.

Notably, Citic Securities, a Chinese broker, jumps up from 13th place at the same time last year to third place this year. Goldman Sachs topped the table for the same period last year but has slipped down to eighth place this year, behind HSBC, Deutsche Bank, Citi and JPMorgan.

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