After a year of weak fundraising across the Asia-Pacific, bankers are hoping that stabilising interest rates and better sentiment on China could make for a better year in 2024.
High interest rates, sticky inflation and geopolitical tensions have seen share sales by Asia-Pacific (including Japanese) companies sink by a fifth in value so far this year to $229 billion, LSEG data shows.
That’s put this year on course to be the weakest since 2012.
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But as interest rates in many countries appear to have peaked and talk turns to rate cuts next year, equity capital market (ECM) sentiment has improved in the last few weeks, bankers said.
“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, Citi’s co-head of Asia equity capital markets.
Meanwhile, China is set to be the world’s busiest IPO market in 2023 for the second year in a row, despite a 35% drop in the value of IPOs to $37.3 billion so far this year.
Tense geopolitical ties with the West and a sputtering economy have weighed on fundraising in the world’s second-largest economy. Chinese regulators have also sought to slow the pace of mainland IPOs as they work on improving mechanisms in secondary markets.
Improving China sentiment
While foreign investors have remained underweight on Chinese equities this year, moves by Beijing to shore up the economy appear to be having an effect on sentiment.
“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 had previously long benefitted from Chinese companies rushing to raise capital in the city, have plunged 36% to about $5 billion this year and are on track for their weakest year in least 20 years, according to LSEG data.
For investment banks in Hong Kong, which had bulked up staff during the pandemic when rates were low, the slump has prompted widespread job cuts.
“Going forward, it will be very helpful for facilitating a successful listing in Hong Kong if listing applicants could have more than just a China story,” said Richard Wang, a partner at law firm Freshfields Bruckhaus Deringer who advises on M&A deals.
Major deals in the pipeline for next year include Alibaba logistics firm Cainiao’s plan to raise $1 to $2 billion in a Hong Kong IPO. It would be the first major listing of an Alibaba unit.
Upcoming elections may crimp demand
Competition for IPOs in Asia is fierce with fees generated from ECM deals accounting for almost 40% of the region’s investment banking wallet versus 25% globally.
Evidence of the improvement in sentiment for share sales has been seen in a number of block trade deals in the region over the past few weeks. These include Bain Capital selling down $448 million worth of its shares in India’s Axis Bank this month.
But windows for companies to come to market for funds would be “tight and tough to navigate” as elections get underway, Citi’s Furtado said.
Businesses are typically reluctant to make major deal decisions around elections due to uncertainty around of potential policy changes.
Elections in the region will kick off with Taiwan next month. Indonesian, South Korean and Indian voters will also head to the polls in 2024.
The US election is also set to be held in November.
- Reuters, with additional editing by Vishakha Saxena
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