Stockmarket bounce may revive some Asian IPOs

But likely comes too late for many of the listing candidates that were forced to cancel their offerings amid last week's market collapse.

While welcome, the bounce in global stockmarkets yesterday likely came too late for many of the Asian IPOs that were postponed last week. The issuers that hadn't yet kicked off the institutional bookbuilding when their deals were called off have the best chance of revival, while those that cancelled just head of the final pricing may find it difficult to come back in the near-term.

Just like one swallow doesn't make a summer, a one-day surge in share prices -- however spectacular -- doesn't suddenly bring back the appetite for primary market issues. Confidence takes a lot longer to build than that. Bankers note that the secondary markets will need to stabilise and show that the current levels are sustainable, and can be used as a base for future gains, before most investors are likely to be willing to pay real attention to new issues again.

"People have been spooked and the focus is more on low-risk assets," said one Hong Kong-based equity capital markets banker.

Another banker pointed to the more than 80% rise in Standard & Poor's volatility index (VIX) this past week, which took it to above 40 from around 20 a week earlier. He said the index will need to come back down and stay there before confidence will return. This doesn't mean that you cannot do follow-ons, but IPOs, which require a much longer marketing period and therefore carry greater price risks, will be difficult in the near-term, he said.

Yesterday's rally was sparked by the €750 billion ($960 billion) emergency loan package, which was put together by the European Union and the IMF and aimed at supporting the euro and preventing the sovereign debt crisis from spreading through the euro zone. The rally was forceful to say the least, but market observers note that a lot of the buying was due to short-covering. This implies that investors weren't actually adding to their positions, only that they were trying prevent losses as share prices headed higher. Also, when compared to the closing levels at the end of the April, a lot of markets are still down.

Hong Kong's Hang Seng index gained 2.5% yesterday, but that wasn't enough to erase the losses over the previous week. The index is still down 3.2% from the end of April and 6.6% from the beginning of the year.

Consequently, bankers are unlikely to feel any more inclined to rush out the deals that they held last week. Among the deals least likely to return quickly is Swire Properties, which was set to become the largest IPO in Hong Kong this year at between $2.4 billion and $2.7 billion. The company is well-funded and doesn't need the money urgently and its Hong Kong-listed parent, Swire Pacific, is keen to spin-off its property arm only if it will create value for the parent company -- thus it is unlikely to want to reduce the earlier price range and valuation to get the deal out the door. The deal was being arranged by Goldman Sachs, HSBC and Morgan Stanley.

Giti Tire and Strikeforce Mining & Resources (SMR) could, however, return if the markets hold up as both were put on hold before the start of the institutional roadshow. This means that neither company had set a price range yet and can, in theory, adjust their valuation to the new environment. One source said Giti Tire could in fact launch later this week if the markets hold up.

The company, which is China's largest tire maker, was planning to raise between $400 million and $500 million in a Hong Kong IPO when it put the sale on hold last Tuesday after a week of pre-marking. While the reason for postponing the launch was put down to the volatile market conditions, some of Giti's peers actually gained as much as 10% last week in light of the fall in rubber prices. This should give some support if it decides to go ahead.

Giti's IPO is being arranged by Bank of America Merrill Lynch and Credit Suisse.

SMR, the Russian molybdenum producer that is owned by Oleg Deripaska who also controls United Company Rusal, was set to launch its institutional roadshow yesterday, but decided late last week to wait and see whether the markets would improve. The company may be extra keen to make this a good offering for shareholders in light of Rusal's poor debut. The aluminium producer, which was the first Russian company to list in Hong Kong earlier this year, has yet to trade above its IPO price.

SMR is expected to raise $150 million to $200 million with the help of BOC International, Deutsche Bank and Renaissance Capital. The company has until the end of June to decide whether to go ahead with the IPO. Beyond that it will need to update the financials in the prospectus. 

Meanwhile, MIE Holdings Corp, a Chinese oil and gas producer which is trying to list on the New York Stock Exchange, reduced the offering price on Thursday last week -- the day the Dow Jones index plunged almost 1,000 points intraday -- and delayed the pricing from Thursday to early this week.

The deal size was also reduced to 12 million American depositary shares (ADS) from 18 million as the existing shareholders who had been planning to sell part of their holdings in the IPO decided to withdraw their shares. At the new price range of $7 to $8, the company can raise up to $96 million. The initial price range of $11.50 to $13.50 would have allowed the company to raise up to $162 million and including the secondary shares would have resulted in a deal size of between $207 million and $243 million. Bank of America Merrill Lynch and J.P. Morgan are joint bookrunners.

According to a source, MIE had a "decent book" going into the final day of bookbuilding but when the markets started tumbling many investors chose to pull their orders. It remains to be seen if the lower offering price and the bounce in US markets overnight - the Dow Jones index was up 3.9% -- will be enough to bring them back.

It is also uncertain whether China Tian Yuan Mining will be returning to the markets this side of summer. The iron ore producer postponed its Hong Kong IPO on Friday after a week of bookbuilding, citing "technical issues." Investors have been given no explanation for what those issues may be, but typically this is a wording used if there is something wrong with the listing prospectus, such as incorrect or missing information.

Indeed, the same reason was given by New Century Shipbuilding when it pulled its Singapore IPO just ahead of pricing earlier last week. According to a story in Singapore's Business Times, the company had neglected to mention in the prospectus that contracts to build two bulk carriers for Sino Noble, which were listed as part of the company's outstanding order book, were in fact cancelled late last year. The company also failed to disclose that Sino Noble has taken New Century to court to claim back the payments it has made for those ships thus far, the paper said. The report hasn't been confirmed, but seems to be generally regarded by market participants as being accurate.

Tian Yuan Mining, which will start production at its first mine in July, was seeking to raise between $317 million and $457 million. The price range was set at a discount of up to 30% versus its closest comparable, China Vanadium Titano-Magnetite Mining, which had fallen almost 24% in the three weeks before the launch. Citi was the sole bookrunner.

¬ Haymarket Media Limited. All rights reserved.
Share our publication on social media
Share our publication on social media