Coronavirus: IPOs lose the human touch

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By:
Jonathan Breen
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Asia’s first virtual roadshows have paved the way for a new digital approach to IPO executions; they are a necessity at the moment, but they could become the new normal.


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By Jonathan Breen

While the coronavirus pandemic has hurt equity markets, it has also sparked innovation among dealmakers. Restricted travel and forced quarantines have encouraged bankers to experiment with entirely virtual roadshows.

Chinese biotechnology company InnoCare Pharma was the first to bring international attention to the virtual roadshow in March.

The firm floated for HK$2.24 billion ($289 million) after conducting its deal roadshow – when the order-book is built and final pricing determined – without a single face-to-face meeting.

Bankers who were not involved in the transaction were quick to point out that InnoCare had spent months beforehand nurturing relationships with some investors, which had included physical meetings. But they also conceded that executing the deal virtually was impressive and a novel approach.

Permanent savings

The roadshow is a key moment for IPOs; for investors, it’s an opportunity to ask difficult questions, while for the listing-hopeful, it’s a last chance to sell its story.

But the idea of doing things virtually will not be just a temporary solution to the problems caused by Covid-19.

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Ringo Choi, EY

The savings on time and cost mean digital communication, particularly video conferencing, will become a permanent part of the IPO process.

“No one has a crystal ball, but my personal view is that the virus will change the eco-system and behaviour,” says Ringo Choi, EY’s Asia Pacific IPO leader. “Webcasting saves travel time, reduces the cost of booking a venue, and it means you don’t need a private jet, which you might use for a roadshow.”

That should result in faster execution of deals and shorter marketing periods.

“We don’t need the management teams to be flying around anymore, which saves a lot of time,” says a Hong Kong-based ECM head. “We can have shorter deal roadshows and be able to do more meetings in a day.”

It was no surprise that Hong Kong was the first market where a virtual roadshow was fully embraced.


Webcasting saves travel time, reduces the cost of booking a venue, and it means you don’t need a private jet, which you might use for a roadshow 
 - Ringo Choi, EY

While southeast Asia and other markets in the region suffered early on in the coronavirus pandemic, in terms of deal flow, Hong Kong was hardest hit. The city’s stock exchange relies heavily on mainland Chinese issuers for listings.

But being hit so badly forced the local IPO market to try something new.

InnoCare Pharma had been delaying investor meetings since the Chinese New Year holiday and by March 11, when it launched, there had been just four listings in Hong Kong following the lockdown of central Chinese city of Wuhan on January 23, according to Dealogic.

Virtual leap

InnoCare took the virtual leap and it paid off. And a mainland-based independent television producer, China Bright Culture Group, managed to execute its own smaller IPO in the same way, without physical meetings.

“As long as travel bans and quarantines continue and as long as issuers and investors remain happy to do it like this, then we will continue to do deals this way,” a lead banker on the InnoCare IPO told Asiamoney’s sister publication GlobalCapital Asia at the time of pricing the trade.

The IPO was priced at HK$8.95 a share, the top of the marketed range, having attracted 120 international investors and covering its retail offering more than 300 times over.

There are plenty of other potential virtual roadshow candidates for the Hong Kong Stock Exchange, which had 101 live IPO applications as of the middle of March, according to an EY report on global IPO markets.

New normal

But despite the proof of success and the potential savings in taking a virtual approach, there will always be a need for physical meetings at one stage or another, particularly when convincing investors to part with large sums of money, equity capital markets bankers say.

Digital communication “is effective in the execution and roadshow where you have a defined number of days you are going to do a roadshow for,” says Niccolo Manno, head of Asia ECM syndicate at JPMorgan. “But in the overall process, there will still be a need for major investors to meet a company’s management in person.”

While there are still going to be people who request to meet in person, says the ECM head in Hong Kong, during the mayhem of the coronavirus, the IPO market “has been getting used to what could become the new normal”.