Shares in Japan Prologis REIT, a real estate investment trust set up by the world's largest owner of industrial buildings, soared more than 20 percent in their Tokyo market debut on Thursday. The strong start for the $1 billion initial public offering (IPO) is a sign that Asia's IPO market is getting its buzz back, analysts say.
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Asia's IPO market suffered last year with companies shelving their plans to list because of a weak economic outlook. The total value of Asian IPOs fell by 35 percent to $57.1 billion deals in 2012 from $87.8 billion in 2011, according to data provider Dealogic.
But generally brighter prospects for the global economy and growing investor confidence have encouraged investors back into equity markets in recent months. The Nikkei stock index has done particularly well, rallying some 31 percent since mid-November as Japan makes a concerted bid to revive its economy and end years of deflation.
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"There is a pipeline of deals set to come to market. Macro uncertainty kept funds out of Asia last year, now allocators are seeing fund flows back into Asia," said West Riggs, MD and head of Asia Equity Capital Markets at U.S. asset manager Piper Jaffray. "More flows equal more dollar supply and therefore more IPOs. I expect a good 2013 for Asian IPOs."
The Japan Prologis REIT IPO raised 100.3 billion yen ($1.08 billion). Bids were outnumbered four times, and the shares surged by as much as 27 percent on open on Thursday to 700,000 yen, substantially higher than the original offered price of 550,000 yen.
Japan has raised $1.4 billion in IPOs since 1 January 2013, making it Asia's hottest market for new listings. This compares with $18 million over the same period last year. Hong Kong ranks second and has raised $788 million since 1 January, compared with $227 million over the same period last year, according to Dealogic.
Ed Rogers, CEO of Rogers Investment Advisors said the success of the Japan Prologis REIT IPO is just the beginning of an improving trend for the broader Asian IPO market.
"The REITs race in Japan has been incredible over the past 17 to 18 months. This is just the beginning, we expect a lot more good news," said Rogers.
Philippe Espinasse, author of 'IPO: A Global Guide', said he had witnessed a pick-up in IPO activity in recent weeks.
"In Hong Kong and Southeast Asia especially, we have seen a lot of investment bankers working on deals that have been delayed due to weakness in markets in recent years. They should come to fruition over the next few weeks," he said.
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Espinasse said a recovery in the shares of those companies that fell after listing last year such as Huadian Fuxin Energy in Hong Kong was also boosting sentiment in the IPO market.
"We are seeing better confidence from investors and the surge out of bonds and into equities have all contributed to improved sentiment towards IPOs as well," he added.
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Although some commentators have voiced concerns about inflated IPO prices in Japan, Rogers at Rogers Investment Advisors' said this would not necessarily be negative for the market.
"Yes prices are higher, but companies are ultimately getting more cash to re-invest in their businesses, which is good for the economy overall," said Rogers, who highlighted consumer goods and IT as sectors most likely to see IPOs in the months ahead.
Rogers expects further flows into the Japanese equity market.
"Institutional investors and retail investors are still cautious about reinvesting their money in Japanese equities and stock debuts. These investors have been unwinding their equity investments for the past five to seven years. We think IPOs like this [Japan Prologis REIT] will attract more money to the Japanese equity market," he said.