Bankers Hopeful for Improvement in Asian IPO Market in 2024 as Elections Loom
SYDNEY, Dec 15 – Bankers in Asian equity capital markets are optimistic about the prospects for an improved IPO market in 2024 following a lackluster performance this year. While interest rates have stabilized globally, concerns arise as elections across the region and in the United States could dampen demand.
According to LSEG data, share sales by Asia Pacific (including Japanese) companies have fallen by a fifth in value so far this year, amounting to $229 billion. This puts 2023 on track to be the weakest year since 2012. The data encompasses new and secondary share sales, convertible bond issues, and block trades.
However, with interest rates appearing to have peaked in many countries and talks of rate cuts next year, sentiment in the equity capital market (ECM) has improved in recent weeks, according to bankers.
We’re in a window right now where the market has factored in a fairly benign macro outlook which could prompt issuers to come. The pipeline is strong, said Udhay Furtado, Co-Head of Asia Equity Capital Markets at Citi.
Evidence of this improved sentiment is seen in several recent block trade deals in the region, including Bain Capital’s sale of $448 million worth of shares in India’s Axis Bank this month.
Furtado cautioned, however, that the windows for companies to raise funds through IPOs could be limited and challenging to navigate due to ongoing elections. As political activity intensifies, businesses are typically hesitant to make major deal decisions, wary of potential policy changes.
Elections are set to take place across the region, starting with Taiwan next month. Indonesian, South Korean, and Indian voters will also head to the polls, and the U.S. election is scheduled for November.
Despite the challenges, several major deals are already in the pipeline for next year. One example includes Alibaba’s logistics firm Cainiao, which plans to raise $1 to $2 billion in a Hong Kong IPO. If successful, it would be the first significant listing of an Alibaba unit.
Competition for IPOs in Asia remains fierce, with fees generated from ECM deals accounting for almost 40% of the region’s investment banking wallet, compared to 25% globally.
China, for the second consecutive year, is expected to be the world’s busiest IPO market in 2023, despite a 35% drop in the value of IPOs to $37.3 billion so far this year amidst a slowing economy. Chinese regulators have also implemented measures to slow the pace of mainland IPOs as they work on enhancing mechanisms in secondary markets.
Foreign investors have generally remained cautious towards Chinese equities this year due to China’s economic struggles and U.S.-China tensions. However, Beijing’s efforts to bolster the economy seem to be having a positive impact.
We are still seeing international investors be relatively cautious towards exposure in China, recent policy changes are providing comfort, and sentiment is starting to turn a little more positive, said Sunil Dhuphelia, Co-Head of ECM for Asia ex-Japan at JPMorgan.
New listings in Hong Kong, which previously benefitted from Chinese companies raising capital in the city, have declined by 36% to approximately $5 billion this year. If this trend continues, it will be the city’s weakest year in at least two decades, as reported by LSEG data. As a result, investment banks in Hong Kong have been forced to implement widespread job cuts.
As for facilitating successful listings in Hong Kong moving forward, Richard Wang, a partner at law firm Freshfields Bruckhaus Deringer, suggested that listing applicants should have more than just a China story.
In conclusion, while bankers are optimistic about a brighter IPO market in Asia in 2024, the upcoming elections pose potential challenges. Despite this, major deals are already in the works, and efforts to revitalize the Chinese economy are gaining traction. The IPO market in Hong Kong, however, is experiencing a significant decline, resulting in job cuts within the industry.
(Reporting by Scott Murdoch; Editing by Sumeet Chatterjee and Edwina Gibbs)
