Market turbulence weighs on IPOs

Sinking equity markets have weighed on the performance of newly listed companies, dampened sentiment and led to billions of redemptions.

Global equities have been pummelled over the past few weeks and, despite signs of a recovery in the last two trading sessions, market participants expect meagre ECM activity until stability returns.  

Indeed, since Alibaba shattered all records and raised $25 billion in the world’s largest initial public offering, a significant chunk of flotations have performed poorly, Dealogic data shows.

Online payment company MOL Global plunged 35% on its Nasdaq market debut on October 9 and is down 38% up to October 20.

Hua Hong Semiconductor dropped 5% on its first day of trading on October 9, although it has since recovered to be only 1% down since it raised $330 million in Hong Kong.

Skylark, the Japanese family friendly restaurant chain backed by Bain Capital, priced its $611 million Tokyo IPO at the bottom of the range on September 29 and is down 14% up to October 20.

It’s a similar story for some of the larger IPOs after the flotation of Jack Ma’s behemoth. Bill Ackman’s Pershing Square Holdings raised $2.7 billion in an Amsterdam listing, and even boosting the original deal size from $2 billion. Shares plunged 12% in the debut and are down 7% year-to-date.

There have been exceptions. La Chapelle, one of China’s mass-market apparel designer and manufacturer, which raised $219 million on September 30, is up 8% in the first few weeks of trading. And Meiya Power, a unit of China General Nuclear Power Corp, jumped 32%.

Alibaba has also avoided the bloodbath. After jumping 38% on its market debut, Alibaba is up 29%, having hovered around the high $80-mark since its record-breaking IPO.

Still, in general, sinking markets have weighed on the performance of recently-listed IPOs and are dampening investor sentiment. The slowdown — spurred by the IMF’s revised global growth forecast to 3.8% from 4% and compounded by the Ebola outbreak — has prompted redemptions and led investors to yank billions from the asset class. According to data provider EPFR Global, global equity funds experienced outflows of $1.99 billion the week of October 13.

Chinese equity funds, meanwhile, experienced $1.5 billion in redemptions, with EPFR research noting that since a five-week inflow streak ended in late August, Chinese equity funds have experienced outflows in six of the past seven weeks.

Blip or meltdown?
Equity markets have shown the first signs of recovering — both the NYSE and the Nasdaq are up 1% in the last two trading sessions. It’s a similar story in Asia, with Hong Kong’s Hang Seng Index rising 1% in the last three trading sessions.

Still, one Hong Kong-based senior ECM banker told FinanceAsia he expects the weeks to be slow for issuance as both companies and syndicates wait for markets to stabilise. “With markets the way they are, everyone’s looking for some stability before pushing things out,” he said. “I’m not expecting any [big deals] this week.”

A second ECM banker noted some are questioning whether this is a blip or something more sinister. “My feeling is the equity slide-off won’t last long. It’s more of a trickle down effect as opposed to a two- or three-year crisis,” the second banker said. In the meantime, there will be a pause in issuance for IPOs and equity-linked deals, he argued.

Bumpy ride for Bangkok Air, BlueBird
Rocky conditions aside, a few deals have managed to cross the finish line.

Bangkok Airways raised Bt14.5 billion ($448 million) in an IPO after pricing shares in the middle of its range over the weekend, while BlueBird, the Indonesian taxi-cab operator, also successfully floated its shares amid market turbulence late on Friday night.

The negative sentiment did, however, weigh on both IPOs. Bangkok Airways, Thailand’s fourth largest carrier, had initially sought to raise up to $604 million by selling 520 million primary shares (24.8% of enlarged share capital) between Bt23 and Bt27 per unit.

The original deal also had two separate secondary tranches of 105 million shares each. The first tranche was to be divested by the controlling family, Paramaporn Prasarttong-Osoth, while the second tranche were to be offloaded as a strategic stake to Bangkok Bank.

The final deal priced 520 million primary shares at Bt25 per unit, in the middle of the price range, a result most were pleased with. “It was definitely not a bad outcome considering the market’s been horrific,” noted one source close to the deal.

Still, the issuer and syndicate had to revise the original terms and slice the secondary offering from 210 million shares to 60 million shares, because the Paramaporn Prasarttong-Osoth family were looking for a higher price than Bt25 per share.

Only 30 lines participated in the book, with the majority of the deal made up of domestic institutions. Still, there were a handful of international investors participating, mainly long-only institutional investors and a few hedge funds.

Because the primary share offering was unchanged, the percentage of enlarged share capital remained the same at 24.8%.

The final pricing put Bangkok Airways’ valuation at 20.85 times its 2015 earnings, much higher than the initial 4.6 to 5.5 times but more in line with its comparables, which include Nok Air, valued at 21.5 times 2015 earnings and AirAsia, which is trading at 24.6 times.

BlueBird also had to contend with dire market conditions, and wound up cutting its deal significantly to $200 million from $300 million, and fixing the price range at Rp6,500 per share, down from Rp7,200 to Rp9,300 per share.

Other deals in the pipeline include Samsung SDS, which aims to raise W1.16 trillion ($1.1 billion as the South Korean business company restructures.

¬ Haymarket Media Limited. All rights reserved.
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