http://www.economist.com/business-finance/displaystory.cfm?story_id=16113187&fsrc=rssAsian IPOs: High hopes, low returnsTough times for Asian marketsMay 13th 2010 | HONG KONG | From The Economist print edition
EVEN in Asia, capital markets are under strain. Undone by fears of slowing growth at home and abroad, the pivotal Chinese stock exchanges have been dropping since December: Hong Kong has fallen by more than 11%, Shenzhen and Shanghai are down by more than 15%. A series of initial public offerings have been cancelled throughout the region (see table). Perhaps most significant was the cancellation on May 6th by Swire’s property arm, if only because its bosses are thought to be too smart to sell at a time of falling demand.
The deals known to have been pulled pale beside the number quietly delayed. Every investment bank in the region has a vast launch pad of potential offerings ready to go, meaning huge amounts have been invested—millions of dollars in some cases—to prepare extensive audits and associated materials for prospectuses. Some companies have stepped back because, like Swire, they can afford to be picky. Others have done so because the daily volatility has been so great that agreeing on a price has been impossible.
A third group is perhaps the most disconcerting. A handful of recent transactions have reawakened suspicions about the quality of companies coming to market. On April 15th the listing of Fujian Star-net Communication, a telecoms-equipment manufacturer, was pulled after doubts arose about the validity of its patents. On May 4th New Century Shipbuilding cancelled what was to have been the largest Chinese offering on the Singapore Stock Exchange after questions were raised about how it disclosed information on cancelled orders. Earlier this year securities regulators in Hong Kong froze in excess of $100m raised in a December public offering of Hontex International Holdings, a textiles company, while it investigated whether financial results in its prospectus were overstated.
This would matter less to investors were the returns on recent listings not so poor. One hedge fund reckons that out of the 15 significant initial offerings done this year, eight are now trading below their listing prices and most of the others are far below the peaks registered in the initial euphoria after their placement.
And yet, for all that, optimism remains. The market for bankers’ services is robust. In the first half of 2009 clients would politely put off hiring candidates brought their way; now headhunters are overwhelmed with genuine assignments. Banks wanting to hire typically need to provide guaranteed compensation of at least one year, and in the case of less prestigious names, two to three years.
And big deals continue to get done. On May 12th trading began in shares of Samsung Life, South Korea’s largest-ever public offering, which raised $4.4 billion. India’s government is on the verge of awarding banking mandates for the privatisation of Coal India, which is likely to be that country’s largest-ever offering. Mizuho, a Japanese bank, is reportedly planning to raise $11 billion in new equity. The Chinese banks are lining up for large amounts, too—perhaps $7 billion for the Bank of China, $11 billion for China Construction Bank, and, another record, $25 billion for the initial public offering of China Agricultural Bank. These are expected to go forward even if the market environment remains hostile and the Chinese government, through its numerous state-affiliated investment firms, has to buy every share.
