Asia’s IPO markets need to adapt quickly
Asia’s IPO markets have been hit hard by the coronavirus epidemic, as travel bans and self-quarantine orders have delayed roadshows and brought deal flow to a near standstill. For the listing markets to survive, issuers, ECM bankers and investors need to adapt rapidly — and put some faith in technology.
No IPO market in Asia has been impacted by Covid-19 as much as Hong Kong, which relies heavily on the supply of new listings by Chinese companies. While the listing market in the city started strong in 2020, it went silent around the outbreak of the coronavirus at the end of January. There have been just four IPOs on the HKEX since then, raising a combined $174m, according to Dealogic data. There were 20 listings in the city during the same period of 2019, Dealogic shows.
Equity capital markets bankers in the city are openly concerned about how sustainable the market is under the circumstances — the sticking point being that IPO-hopefuls and investors typically like to meet in person before any final decisions are made.
With face-to-face meetings all but impossible these days, companies, bankers and investors need to embrace plan B — using phone calls and video conferences to get deals done.
It’s not a novel idea. In many IPO cases, early-stage marketing and pre-deal investor education are often done through calls and video conferences. But firms now need to go a step further than that, and use these virtual tools during bookbuilding too instead of holding a physical roadshow.
It won’t be easy. Asia’s issuers and investors, across different asset classes, have long preferred firming up deals and orders over lunch or drinks. They have traditionally put a lot of importance on face-to-face meetings as a way to size up the other party.
But if there was ever a time to test out a new bookbuilding approach for IPOs, it would be now. The threat from the Coronavirus may abate in a few weeks, but could even take a few months. And even when the epidemic is brought under control, it may be a while before investors and issuers are ready to engage in large gatherings. Virtual meetings could be the solution.
Some are testing this out. China Bright Culture Group, a mainland-based independent television producer, sealed a HK$900m ($115.8m) IPO last week — reportedly pulling off the deal with no physical meetings.
The company has shown it can be done. Other issuers sitting on the sidelines can’t and shouldn’t dismiss the idea. Rather than endlessly pushing back timetables, dealmakers can overcome the barriers of blanket travel bans and quarantines with virtual roadshows.
Of course, smaller IPOs, like that of Bright Culture, will find it easier as they are asking for investors to part with less capital. But larger companies plotting bigger deals should also seriously consider this option. While explaining issuer stories from complex sectors, such as biotechnology, over conference calls may be difficult, if that hurdle can be cleared, then online roadshows make for a realistic fix to a, hopefully, temporary problem.
While the number of IPOs has ebbed in Hong Kong, new listing applications have started flowing to the exchange again as a pipeline slowly builds up.
If Covid-19 fears don’t recede soon, these IPO-hopefuls would need to face up to the new virtual reality.