In Hong Kong, where the Hang Seng Index set a record high on the first trading day of the year, the market has already seen a couple of block deals as institutional investors cashed in some of their gains in mobile operator Hutchison Telecommunications International and Chinese property developer Hopson Development last week.
Listed companies are also expected to continue to sell new equity to take advantage of high share prices and the strong liquidity in the market, which so far is showing no signs of abating.
ôWe have already seen some opportunistic fund raising, but there will be more. I wouldnÆt be surprised to see some more large sized follow-ons coming through in the first quarter,ö says Simon Aird, head of Asia equity syndicate at Credit Suisse.
IPO activity will by no means grind to a complete halt, but after the rush to get deals done before the end of December - Hong Kong alone saw $7.4 billion worth of IPOs last month - the issuance activity is likely to feel quite slow for a while.
One reason is that in some markets, including Hong Kong, companies can no longer base their listing documents on first half accounts. While nine-month numbers are still okay, many companies will hold off on their IPOs until they have their audited full-year accounts which are usually not in place until March or April.
Another reason for the expected slowdown is that most IPOs that were targeted for November or December managed to get completed in time. Regal Reit was one of those that was held over. However, the fact that people involved cited the poor sentiment for Reits in the wake of Sunlight ReitÆs dismal debut as a reason for the delay suggests that this one is unlikely to return to the market in the near term.
In India, the IPO of property developer DLF Universal, which was postponed last year while sorting out a legal issue, has re-filed with the regulators. It is now expected to launch an offer in March that could still be above $2 billion. Merrill Lynch and Kotak Mahindra are leading that offer.
Most bankers believe it will be difficult to touch last yearÆs Asia ex-Japan equity fund raising record of $125 billion, which was inflated by the IPOs of Industrial and Commercial Bank of China and Bank of China, which raised $21.9 billion and $11.2 billion respectively. However, they predict 2007 will be no less busy than last year in terms of the number of deals, given the favourable economic backdrop, the possibility that interest rates will come down, falling oil prices and the regionÆs strong liquidity.
Also, there is a belief that the increasing intra-regional activity in Asia will help support the markets, even if the US economy slows down.
ôFund managers have been attracting a lot of cash for global emerging markets funds and Asian funds since Asian markets started to run three years ago. With the concerns about growth in the US, money is shifting here where growth is not a problem,ö one syndicate banker says.
However, others argue that the possibility of liquidity starting to dry up could mean that issuance conditions will be more volatile than last year when aside from the six-week correction in the spring, secondary markets were for the most part moving steadily higher.
A continued pickup in cross-border mergers and acquisitions in the region will be an important driver of activity in both equity and debt capital markets as companies are looking to finance their deals, projects Ian Carton, head of ECM at Merrill Lynch.
The private equity investments of the past couple of years will also give rise to a number of IPOs as these firms try to cash in, he says, noting that in the UK such ôsponsored activityö has become the biggest source of IPOs.
ôLiquidity will dictate whether we can do as much this year (as in 2006). It will be very hard to find deals the size of ICBC and Bank of China, but there should continue to be a number of what would otherwise be considered very sizeable deals,ö Carton says.
ôItÆs difficult to see any IPOs approaching $5 billion, but there is likely to be a cluster of $1 billion to 3 billion deals,ö adds Aird at Credit Suisse.
Most bankers project that the total deal volume for the year will exceed the $94.5 billion that were arranged in 2005, and could well exceed $100 billion for the second year in a row. Activity is expected to be widespread geographically with China and India leading in terms of volume, but Southeast Asia and the Philippines continuing to see important deals and new markets like Pakistan and perhaps Vietnam starting to play bigger roles.
Indeed, one observer argues that the banks that have the biggest regional footprint will be the busiest in 2007, both in terms of the number of deals and in absolute dollar terms. The only market that bankers are generally sceptical about is Thailand where demand for equity is expected to be thin after the investment controls introduced by the new government at the end of last year.
According to one banker there are also some deals ôbubbling in Indonesia,ö which was very quiet in terms of public issuance last year. The local press has reported that Indonesian noodle manufacturer Indofood Suskes Makmur is looking to spin off its plantation unit through a reverse takeover in Singapore. One market source says that deal could be completed as early as this month and the company may sell $250 million worth of shares in connection with the listing.
People also expect South Korea to see a bit of a pickup this year û after a lacklustre secondary market limited the amount of new issuance activity in 2006. The $3.5 billion IPO by Lotte Shopping did help keep the volumes up, however.
Like in 2006, China is expected to continue to dominate on the IPO front with a bulging pipeline of both private enterprises and large state-owned firms seeking to raise growth capital. Among the latter, bankers expect more firms within the infrastructure and transport sectors to come to market after the successful listing of the countryÆs largest ports designer, China Communications Construction Co, last month.
The resources, energy, power and industrial equipment sectors are expected to see a bunch of IPOs, while consumption plays and technology and alternative energy related companies will also continue to seek listings both in Hong Kong and New York. Solar Power is expected to remain in focus with talk of five more Asian companies from this sector seeking to go public û and could raise over $1.5 billion.
In the FIG space focus is shifting from the Big Four to the second liner banks and insurance companies, likely starting with China CITIC Bank in the first half. That offer, which is expected to raise at least $1.5 billion, will be arranged by CICC, Citic Securities, Citigroup, HSBC and Lehman Brothers. It should be followed by Bank of Beijing, China Everbright Bank and Minsheng Bank, among others. China Pacific Insurance, which could raise as much as $1 billion could come as early as the first quarter, according to market sources. The insurer has mandated UBS to lead the IPO.
Other deals in the immediate pipeline, according to sources, include food additives producer Shandong Fufeng Chemical, which is currently pre-marketing a Hong Kong IPO of about $100 million to $150 million through ABN AMRO Rothschild and Goldbond; department store operator Intime, which is seeking up to $150 million with the help of Morgan Stanley; Australia-based Sino Gold which is hoping to raise about $100 million also through Morgan Stanley; Chongqing Machinery and Electronic Co, which hopes to raise about $250 million through Credit Suisse; and Wuyi Pharmaceutical, which is looking to raise up to $100 million through Credit Suisse and UBS by the end of January.
However, Mainland-based companies are also expected to do a significant portion of their fund raising in the A share market after the ban on new listings was lifted in June last year. Since then, several high-profile Chinese companies that are already listed in Hong Kong, including China Life Insurance, have chosen to raise fresh capital through domestic listings. Ping An Insurance, Bank of Communications and China Mobile are among the companies that are planning A-share sales in 2007.
This development has been widely expected and international investment banks are all busy trying to figure out how to get a piece of this business. So far, Goldman Sachs is the only international investment bank that can underwrite domestic equity issues through its Mainland joint venture Goldman Sachs Gaohua Securities, while UBS is also expected to be close to receiving the necessary approvals for its JV with Beijing Securities.
India, which accounted for about 15% of ECM issuance in Asia ex-Japan last year, is expected to remain busy as the secondary market continues to set new highs. While analysts keep saying that the market is overvalued, there are still huge amounts of small- and mid-sized companies that need capital to fund their rapid growth. Also, bankers note that investors around the world ôcontinue to discover Indiaö which suggests that the demand for new equity will remain robust as long as the stock is offered at a slight discount to the broader market.
Among the most sought after sectors in India at the moment is property and infrastructure and DLF - the biggest known deal expected out of India at this point - will be part of a recent wave of Indian property companies and funds going public in the domestic market and in London. A smaller example within the same sector is Akruti Nirman, which is expected to start pre-marketing soon of an IPO of about $70 million. The deal, which was pushed back from last year due to regulatory issues, will be arranged by JPMorgan and Enam.