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Asia IPO rush is not a return to normal

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By Jonathan Breen
10 Sep 2019

Asia’s IPO market burst into life this month, with issuers in Hong Kong, South Korea, Singapore and the Philippines testing investor appetite for their listings. While the resurgence is welcome after a bleak year for issuance so far, it is likely to be short lived, with a lot also resting on early movers’ performances.

Asian IPO investors have a lot on their plates this month. Bank of Guizhou, Home Credit and Topsports International Holdings have all begun pre-marketing IPOs in Hong Kong SAR, with each seeking about a $1bn.

Alongside these are deals from Shanghai Henlius Biotech and Tot Biopharm International Co, which are planning $500m-$600m and $150m listings this month, respectively, also on the Hong Kong exchange.

Philippines-based AllHome Corp is on the road for a local IPO that could raise Ps20.7bn ($398.5m), creating a buzz in a country that hasn’t seen a listing of that size since October 2016, when Pilipinas Shell Petroleum Corp floated for Ps19.2bn, according to Dealogic data.

There is also Lendlease Reit’s Singapore IPO of around $500m, and Lotte Real Estate Investment Trust, which is preparing a W430bn ($361m) listing in Korea next month.

These deals are keeping both investors and ECM bankers in Asia busy after the summer lull. But those calling a revival of IPOs need to take a step back. This burst of business, especially in Hong Kong, is likely to be short-lived.

Rather than a return to normal, the flow of IPOs is more the result of a backlog of deals that could not get done because of volatility in global markets and increasing political unrest in Hong Kong during the early part of the third quarter.

After that came the August earnings blackout period, so September presented potential issuers with a window to test the market and release some pressure on the pre-summer IPO clog.

The numbers reflect a difficult year for IPOs in Asia ex-Japan. Volumes have slumped to $34.9bn from 403 listings so far in 2019, versus $56.85bn of IPO volume from 496 deals during the same time last year, shows Dealogic.

While the recent deal flow is a good sign, bankers say that the fourth quarter pipeline of IPOs is fairly small.

Additionally, many macro and political headwinds are also affecting sentiment. The continued back-and-forth between China and the US on trade, fears of a global recession, and the unabated tensions in Hong Kong have been playing on issuers’ minds, driving many to delay their IPO plans to late this year or even into 2020.

Of course, plans and timing could change depending on how the latest bunch of IPOs fare in the next few weeks.

Early signs are quite positive, as issuers braving the market have a captive investor base that is looking to put their cash to work. Plus, support from mainland investors — for the IPO of Bank of Guizhou particularly — will certainly help.

Ultimately, though, the flurry of deals does not mean that all is well in Asia’s ECM market. But how the IPOs perform, both in primary and secondary, could shed light on the market’s health and investor appetite.

By Jonathan Breen
10 Sep 2019