Equities: Shine comes off already stalled Asian IPO market
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Equities: Shine comes off already stalled Asian IPO market

Graff pulled on verge of float; Alibaba ultimate test of appetite

The postponement of the much-hyped $1 billion initial public offering of Graff Diamonds is another blow for an Asian equity capital market that is struggling amid continuing volatility.

Hopes were high that Graff, followed by the float of Formula One, would provide the impetus for others considering equity offerings to take the plunge.

Very few deals this year have made it to the public markets, as companies and their advisers elect to wait for volatile equity markets to stabilize. This year, 46 deals worth a combined $7.7 billion have been pulled in Asia ex-Japan, according to Thomson Reuters. Volatility is being driven largely by the twin threats of a slowdown in China and the eurozone crisis.

Graff, the London-based luxury jeweller specializing in the largest diamonds, pulled its offering at the 11th hour late last month, citing adverse market conditions, after it struggled to fill its order book. The company had begun taking orders from retail investors for its Hong Kong IPO, which would have been the second largest in the region this year, after April’s $1.68 billion float of Haitong Securities.

Pole position

All eyes will now be on Singapore, where Formula One, the motor-racing business, has started pre-marketing its $3 billion offering after receiving approval from the Singapore Stock Exchange to proceed with a listing. It is understood the deal will be priced by the end of the month.

Formula One leads the way in Singapore
Formula One leads the way in Singapore

Should Formula One make it to the public market, its performance will be vital for the wider IPO scene. The pipeline for IPOs in Asia remains robust, and good first-day and after-market performance by a number of high-profile companies will go some way to instilling confidence in others that the time is right to pull the starting trigger on their own deals. Graff will make things harder but some observers maintain there are reasons to be hopeful.

"Deals where the valuations stack up will work," says one head of ECM for Asia. "I don’t think the fact Haitong, for example, got done signals a bull market in IPOs. But selectively, deals will get done. The onus is on banks to work with investors at the early stages of discussions about a float and make sure they understand market conditions."

Other market sources say deals from large, differentiated companies with a unique proposition in their respective sectors and a global footprint were the most likely to succeed against the backdrop of prevailing market conditions.

This year, according to Dealogic, Goldman Sachs is leading the way in Asian ECM bookrunner rankings, working on 22 deals with a combined deal value of $6.1 billion for a market share of 9.4%. Second place goes to UBS with an 8.7 % market share advising on 34 deals with a deal value of $5.7 billion. Citi takes third place with a 7.7 % market share. It has advised on 21 deals with a combined deal value of $5 billion. Bank of America and JPMorgan complete the top five for the year to May 16.

Formula One’s Singapore IPO could value the company at $7 billion at the low end and raise up to $3 billion. As a precursor to a public offering, CVC, the venture capital company, sold a $1.6 billion stake in the business to an investor group comprised of BlackRock, Waddell & Reed and the investment arm of Norway’s central bank. Marketing of the IPO to retail and institutional investors is under way. Goldman Sachs, Morgan Stanley and UBS are leading the offering.

If it comes to fruition, Formula One will be the first high-profile listing by an overseas company in more than a year in Singapore. Last year, Li Ka-shing, the Hong Kong-based tycoon, raised $5.5 billion by listing Hutchison Ports, the port operator, in Singapore.

Face off

In a skittish global market, the problems that beset the offering of Facebook, the highest profile and largest in recent times, did nothing to increase confidence in the capital-raising environment.

The ultimate test of market appetite in Asia could come when Alibaba, China’s largest e-commerce platform, taps the market in a bumper deal expected later this year that could value the company at $35 billion.

It has agreed to repurchase an approximate 20% stake in itself from US web portal Yahoo for around $7.1 billion. Yahoo will receive at least $6.3 billion in cash and up to $800 million in newly issued Alibaba stock. Alibaba will be required to either buy back 25% of Yahoo’s current stake at the price of a future IPO or let Yahoo sell the shares in the IPO.

One banker points out that despite Graff’s withdrawal and the rocky start to the year for IPOs, 2012 could turn into a decent year. "I don’t think all is lost for the IPO market just yet," says the banker. "There are plenty of deals ready to go quickly and if others do well, we could see a surge.

"That said, the great unknown remains the crisis in the eurozone. A bad outcome will send equity markets across the globe into another tailspin, and that will obviously cause the green shoots to wilt."

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