It has been a poor start to the year for equity capital raising in Asia ex-Japan, with activity down 49% compared with the same period last year.
Only 41 companies in the region sought to tap equity capital markets in the first two weeks of the year, raising $3.43 billion from January 2 to January 13, according to Dealogic data. This is significantly down compared with the same two-week period of 2014, when $6.73 billion was raised via 63 deals.
It's the worst start since 2012 -- when $1.7 billion was raised via 31 ECM deals -- and a far cry from the $8.33 billion raised in the first weeks of 2011.
The same can't be said of private placements. Citic Securities plans to place up to 1.5 billion new H-shares to less than 10 investors and raise $4.5 billion, while Haitong Securities just completed a $3.9 billion share placement to seven investors. The deals offer the coordinating banks a positive start to the year.
This is just as well because only three companies floated their shares in Hong Kong in the first week of the year, raising $101.4 million in the process. Asiaray, a Chinese outdoor advertising company, secured $89.4 million after pricing 110 million shares at the bottom of its targeted range. Future Bright Mining also raised $10 million while Deson Construction raised $2 million, Dealogic data shows.
This year's largest IPOs have all occurred in China -- Spring Airlines raised $296 million in its Shanghai listing, while Beijing Kunlun Tech, Wanda Cinema Line and HappiGo Home Shopping collectively raised $545 million after floating shares in Shenzhen, Dealogic data shows.
Follow-on share sales in Asia ex-Japan are also down for the first two weeks of the year compared to the same prior-year period. Some $1.9 billion has been raised so far compared with $3.86 billion in the start of 2014.
The equity-linked market has been completely dormant, with no deals so far this year compared with the $1.26 billion raised a year earlier.
Hong Kong-based investment banks expect conditions will remain challenging for the next few weeks, citing uncertainty surrounding Greece and its continued membership of the eurozone, the potential for US interest rate rises as the US economic recovery gathers pace, and a slump in oil prices as supply outstrips weakening demand. Brent oil last week dipped below $50 a barrel for the first time since May 2009.
Exodus
These conditions follow a global exodus from emerging market equity funds. Some $2.56 billion was yanked from emerging market equity funds in the week to December 31, marking a seventh consecutive week of outflows, according to Morgan Stanley research. Within the emerging markets space, Asian regional strategies suffered the largest outflows, losing $1.38 billion during this period.
In the same week, among Asian investment funds, Chinese-focused strategies saw outflows total ling $1.54 billion, the research showed.
Activity has picked up somewhat. Singaporean sovereign wealth fund GIC sold its 4.9% stake in Indonesian real estate firm Pakuwon Jati for $90 million. Phoenix Healthcare managed to secure $80 million in its own placement, and Ayala Land defined rocky market conditions to complete its own top-up placement last week, which net the Philippines' property company $350 million.
But it's not been smooth sailing for all. Chung Eui-sun and his father Chung Mong-koo's attempt to raise $1.25 billion by offloading a combined 13.4% stake in Hyundai Glovis flopped. It was an enormous deal size compared to the company's current average daily trading volume of 75,719 shares, and investors baulked. "My understanding is the Korean [investors] didn't turn up," one banker not on the Hyundai deal told FinanceAsia.
The combination of events appears to have cast a pall over Hong Kong ECM activity and has reinforced bankers' feelings that investors are beginning the year on the sidelines.
"Unless markets start to improve, it could well be quiet [for the next few weeks]," a second Hong Kong investment banker told FinanceAsia. "Markets are not particularly supportive at the moment."
"It's a slow start," a third banker agreed, adding that he does not have any imminent deals in his pipeline.
Other bankers echoed this sentiment, noting that choppy markets will keep deal flow muted for the time being.
The new Chinese Year of the Goat also doesn't kick in this year until the end of February, so it's possible companies may wait for their year-end numbers before coming to market.
"A late Chinese New Year this year will give [a] window to select IPOs but probably not for us," a fourth banker said. But he added that block trade activity may pick up towards the end of this month as companies rush to do secondary offerings before year-end results are announced. "On the block side, you should see some rushing to get done in the end of January before the results blackout this year."
So, before year-end results are announced, which happens on or around CNY, he reckons a lot of companies will rush to do secondary offerings before the blackout period of earnings season.
And to cap off this year's woeful start, Standard Chartered plans to close its global institutional cash equities, equity research and equity capital markets businesses. This will result in the loss of 200 jobs, the majority of them in Asia.
The job cuts will fall mostly in Hong Kong, Singapore, Korea, India and Indonesia, with minimal reductions in the UK and the US, and result in an additional $100 million in savings in 2016, the bank said in a statement.
On the plus side, this will open up space for Standard Chartered's rivals, with headhunting firm Correlate estimating that there will be an additional $50 million to $60 million of non-ECM revenues up for grabs.
This article was corrected on January 14 to show that Correlate estimated additional non-ECM revenues would be up for grabs, not ECM revenues as previously stated.
