2016 outlook: Equity's return to health

The third part of FinanceAsia's look at prospects for the year ahead examines the outlook for equity capital markets.

Equity capital markets had a volatile year in 2015. A promising start was badly impacted by China’s summer market rout, while political issues and weak commodity prices left Southeast Asian deal volumes lacklustre.

Total equity volumes for Asia ex-Japan reached $226.9 billion by November 27, while fees were $3.6 billion, compared with $238.1 billion and $4.2 billion, respectively, for full year 2014.

However, initial public offerings reappeared as the year drew to a close and supply for 2016 looks promising.

“The visible pipeline ECM pipeline for 2016 is robust,” Saurabh Beniwal, co-head of corporate client solutions for Asia at UBS, told FinanceAsia. “We anticipate strong domestic and offshore deal flow from China.”

Again, the origin of most the activity is obvious.

“The pipeline of deals is still heavily focused in China,” said John Huang, head of equity-linked origination at HSBC. “Even companies that are already listed have more funding needs, and the number of candidates is broad too, across many sectors.”

Some of the most anticipated deals involve Chinese SOEs. The biggest deal should be an IPO of Postal Savings Bank of China. The lender gained around $6.5 billion in pre-IPO financing in November and is expected to try to raise $20 billion or more in a listing.

However, it is China’s burgeoning privately owned sector that could yet yield the most business, including firms involved in healthcare, tourism, and consumer goods and services. Healthcare is seen as being particlarly appealing, with many firms looking to consolidate or list.

“Investment banking activities have picked up in the healthcare sector, although companies are mostly small to medium in size,” said John Hall, co-head of Asia Pacific M&A for JP Morgan. “We are adding resources.”

That could crimp the average deal size and mean fewer $1 billion-plus IPOs from China in 2016 than the 12 recorded in 2015. 

One area with a mixed outlook, though, is the privatisation of US-listed Chinese companies. There are over 30 outstanding take-private deals but the A-share market will need to offer strong valuations for them to proceed.

Fintech future

With outright fees still declining, leading investment banks will look to continue arranging pre-IPO private placements in 2016. It’s easy to see why: they can earn big fees doing so.



Most of these companies are technology related. For example, Lufax is believed to have paid many millions of dollars for Morgan Stanley to coordinate its Rmb3 billion initial round of fund-raising in March. Similarly, companies such as China’s Ant Financial, Korea’s Coupang and India’s Flipkart have raised capital privately. All may seek listings in the coming few years.


“As we look forward to 2016 we see a lot of activity in all three TMT sectors and we believe India and Korea will achieve their potential,” Dieter Turowski, co-head of Asia investment banking at Morgan Stanley, told FinanceAsia.

“TMT was a big story for M&A in 2015 and this will continue into 2016,” agreed Joe Gallagher, head of M&A for Asia Pacific at Credit Suisse. “There are many fast-growing digital companies that want to amass market share in China and beyond, and they are willing to look to mergers to get it. Plus giants such as Alibaba and Tencent are adding selectively to their businesses.”

Some investors and executives have voiced concern about a potential bubble forming in the private financing of some fintech companies in China. However, prices have been coming back into line with public valuations of late.

“It’s a good thing pre-IPO valuations are coming down. Frothy private-financing rounds make the next round or the eventual IPO much tougher,” said Turowski.

Investors have been happy to buy stakes in so-called unicorns – start-up private companies worth over $1 billion – with the anticipation of big paydays when the companies list.

Yet Hall of JP Morgan suggests patience. “Many of the TMT companies that raised private equity [via private placements] this year could take until late 2016 or 2017 before deciding to conduct a public listing,” he said.

Part one of FinanceAsia's series focused on China, while part two looked at M&A. In the final part we look at the debt markets

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