Asian IPOs Brave Choppy Markets
Air Asia X, the Malaysia-based long haul budget airline, became the latest Asian company to brave volatile conditions to make its stock market debut on Wednesday, even as many other firms have delayed listings or given up plans of capital raising altogether.
Fears over the impact of the U.S. Federal Reserve tapering its massive bond buying program later this year has sent global markets into a tizzy with Asian assets - stocks, bonds, currencies - being the hardest hit.
The MSCI Emerging Markets index has sold off around 13 percent since the Fed first hinted at tapering at the end of May.
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However, analysts say companies are still entering the market by adapting their IPO (initial public offering) strategies to make them more attractive to investors.
"They [Asian companies] have to make their IPOs cheaper and more palatable for investors," said Philippe Espinasse, author of IPO: A Global Guide.
"They have to go for lower transaction sizes and be more reasonable on the valuation of their shares," he added.
Azran Osman-Rani, the chief executive of Air Asia X, which is the largest IPO in Malaysia this year raising $310 million, told CNBC; "We priced it about right."
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In June alone, four companies in Hong Kong either dropped IPO plans or cut their IPO sizes, according to the Wall Street Journal.
One recent example was the IPO of casino operator Macau Legend, originally scheduled to debut on Hong Kong's Hang Seng index on June 20, but the company delayed the listing amid volatile conditions. When it finally came to list last week, the firm was forced to halve the number of shares offered from 2.05 billion to 934.8 million. It raised HK$2.19 billion ($282 million) in total.
China-based hotelier New Century debuted its Real Estate Investment Trust in Hong Kong on Wednesday, in another example of a firm forced to heftily slash the original size of its IPO by a whopping 66 percent said IFR, a Thomson Reuters publication. It priced the shares at the bottom of its range, raising HK$676 million.
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"Companies are adapting their style of IPOs. Just to give you a quick summary. New Century REIT and Air Asia have put in place strategies to mitigate the risks of their IPO. New Century is offering guaranteed rental income and Air Asia has a strong brand name in Southeast Asia," said Kelly Teoh, market strategist at IG's Singapore office.
The total value of Asian IPOs fell by 35 percent to $57.1 billion in 2012 from $87.8 billion in 2011, according to data provider Dealogic. However, Asia's most prominent IPO market, Hong Kong, has seen a a revival this year, according to PricewaterhouseCoopers' research, as fundraising increased 28 percent compared to the first half of 2012.
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"Inevitably there will be something of a slowdown [as a result of the volatility], as a number of deals just won't get done. The strong tightening in the credit market in Asia is making it more difficult for companies to raise finances through the bond market, but these companies still need to raise funds," added Espinasse.
Edmond Chan, partner at the capital market services group at PwC's Hong Kong office, says most companies would push on with their plans to IPO despite the volatile conditions.
"Companies have to make a decision whether to wait or push ahead and sometimes their funding needs dictate that. But it's not just about funding, it's also about status, sometimes it costs a company more to wait longer, so they just decide to go for it at the time," he added.