China to dominate 2001 equity issuance

ChinaƆs successful bid for the 2008 Olympics is not the only new talk of the town -- its equity market is too, says CSFB.

According to a quarterly review of the region's equity markets by Credit Suisse First Boston, China will dominate the 2001 equity issuance market.

The report’s author George Pavey, a director in ECM, says that investors are exhibiting strong interest in increasing their exposure to Chinese equity. Potential sell-downs in oil, gas, and telecom sectors by the Chinese government are predicted to drive fund raising activities in China for the rest of the year. 

The bank anticipates that total new issuance volume for the region will amount to $20 billion to $25 billion by year-end, about half the level of the record $47 billion raised during 2000. The report says that there is currently estimated to be a $41.6 billion backlog of issues, of which China accounts for 50%.

During the second quarter, there were 10 straight equity issues and the bank reports that investors made an average return of 9.7%, outperforming most world indices. Many of the issues have attracted strong demand, it adds, with oversubscription levels averaging 2.5 times. 

New issues in non-Japan Asia have also performed quite well, the report continues. IPO’s have gained 30.2% on average since issue and follow-on offerings have been up 2.2% from pricing.  The two largest issues of the quarter came from Korea, with Korea Telecom completing a $2.24 billion deal and Hynix a $1.25 billion deal. As a result, Korea accounted for 68% of total volume during the quarter, with China, Hong Kong and Taiwan representing 8%, 1% and 16% respectively. 

“If sentiment improves, privatization activity is likely to dominate new issue activity in the second half of 2001, driven by issues emanating from China, Taiwan, and Korea,” Pavey comments. “The financial services sector could also witness a surge, with potential IPOs coming out of China and Korea, as well as fundraising by Singaporean banks to finance their acquisitions.”

The equity-linked new issue market has also been extremely active. In the first half of this year, 17 convertible issues have raised over $6 billion compared with $7.6 billion for the whole of 2000. However, while fundamentals are said to remain favourable, oversupply has caused a glut and investors have become more selective and price sensitive. Higher yields and low premia are needed in order to attract investors to participate in new equity-linked issues, the report concludes.  

According to Julian Hall, head of convertibles at CSFB in Asia, “On average, yields on convertibles globally rose 38bp in the second quarter compared with the first quarter while conversion premia declined 36.3%.”

In terms of key equity indices, the China Shanghai B share index was the world’s second best performing during the second quarter, up 38.5%. The Hang Seng Index, performed similarly well, up 27.2% to take fourth place, while the Jakarta Composite Index came eighth and was up 14.8%. Rounding off the top ten, the Kospi came in up 13.7%.

At the other end of the scale, Taiwan ranked second as the world’s worst performing index during the second quarter, down 15.8%; the Kuala Lumpur Composite Index came sixth, down 8.4%; the Mumbai Sensex 30 Index eighth, down 4.1%; and the Philippines Composite Index tenth, down 2.5%.