Asia has seen a flurry of deals in Asia equity capital markets over the last few weeks, and this trend is set to continue according to market experts.
On September 16, Hong Kong saw its largest initial public offering (IPO) with Foshan-headquartered Midea Group raising HK$31 billion ($4 billion), well above market expectations. It also had the feel good factor of attracting back global investors to the Special Administrative Region (SAR) after years of turmoil through the protests and Covid-19. Investors include Hillhouse Investment, GIC, Temasek Holdings, and UBS Asset Management, according to a report in Bloomberg.
Midea, which was advised by law firm Skadden on the H-share deal, is a global home appliance firm which makes products such as air conditioners, and has an emphasis on technology and smart devices. Midea climbed 7.8% on September 17 to HK$59.2, and going into the mid-autumn festival, a public holiday on September 18 with no trading, the Hang Seng Index (HSI) was up 1.32% finishing on 17,652, and was nicely poised before the US Fed cuts rates later in the week by 50 basis points; since then the HSI has been on a sustained rally.
The aim of the IPO in Hong Kong, in addition to its listing in Shenzhen, is to seek money for further acquisitions and expansion. CICC and BoA Securities were joint sponsors, joint global coordinators, joint bookrunners, joint leader managers (JLMs) and overall coordinators on the deal. Other joint global coordinators, joint bookrunners and JLMs were UBS, Citic Securities and Goldman Sachs; with Huatai International, GF Securites (Hong Kong) and CMB International were also joint bookrunners and JLMs. Law firm King & Wood Mallesons acted as the PRC counsel to the joint sponsors and underwriters.
Yang Wang, M&A Asia partner, at Dechert told FinanceAsia: “The recent listing of Midea shows that the Hong Kong market is not really short of cash -- [the issue is] the lack of prospects for profits in a high interest environment."
Wang added: "Now that a rate cut is almost certain, good companies who are offering at good prices (such as Midea) will encourage inactive investors to take actions.”
Commenting on LinkedIn, Bonnie Chan, chief executive officer of the Hong Kong Stock Exchange (HKEX), sent her congratulations to Midea Group “on the world’s second-biggest IPO this year”.
Chan added: “HKEX is an international fundraising platform that helps companies raise capital in stages beyond just the IPO. We’ve already seen more than $20 billion in follow-on deals so far this year, underscoring the breadth and depth of our markets, and their ability to support diverse and substantial offerings."
Chan continued: "[The] listing also highlights the China Securities Regulatory Commission’s earlier pledge to support the Hong Kong market and to facilitate more IPOs from leading mainland [Chinese] enterprises.”
Also commenting on the deal, Meng Ding, partner at Sidley Austin, said: “Potential issuers, many of them PRC-based, have real needs for capital raising, especially as such capital raising actions have been delayed for various reasons in the past few years - including the Covid-19 pandemic, a slower-than-expected economic recovery, and geopolitical uncertainties.”
Ding added: “There is still plenty of capital in the market, globally, seeking good investment opportunities. Sidley recently advised XtalPi’s in relation to their Hong Kong IPO, the first Chapter 18C IPO. This IPO attracted a diverse set of global investors and its share price appreciated substantially following the IPO. indicating continued market interest and confidence in hard-tech issuers. The combination of Chapter 18A and Chapter 18C presented a Nasdaq-like local bourse in Hong Kong for hard-tech and deep-tech companies, especially those located in the PRC.”
Another success was for Asia's equity markets was Indian home loan provider Bajaj Housing Finance, which raised $871 million, hitting its upper circuit after climbing 10% on its debut on Monday. The IPO was heavily oversubscribed and the success of the IPO, for the Pune-headquartered multi-billion dollar company, followed two successful large listings in India in August for electric vehicle manufacturer Ola Electric Mobility and baby-product firm Brainbees Solutions.
Taiwan is another Asian market that is heading for a record year in equity capital markets, according to data provider Dealogic. Volumes have already topped $7 billion year to date, the busiest on record, across a range of famous tech names via combinations of global depositor receipts (GDRs) and convertible bonds (CBs) and other equity products.
Citi has been an active bookrunner, with a market share of close to 60% in what is a key market for the US-headquartered global bank.
Cyclical recovery
After a tough few years, the appetite amongst investors for Asian equities could finally be turning.
Udhay Furtado, Citigroup’s Asia head of ECM Origination and Solutions, told FA: “We are in the beginning stages of a cyclical recovery and expect the market to pick up further with more billion-dollar plus deals from Asia. Valuation gaps are narrowing, and we are seeing some signs of confidence returning, [and] we have been especially active in markets such as India and Taiwan, for example.”
Hong Kong-based Furtado added: “Monetary easing, superior growth in the region, and strong aftermarket performance from recent listings should spur greater IPO activity across the region. There is a sizeable pipeline of high-quality Apac companies coming to market that will be interesting for global investors.”
Across the first eight months of this year, Citigroup is currently ranking first in the league table for Apac equity offerings, according to Dealogic, and tops the league tables for equity and equity-linked offerings in India and Taiwan.
With rate cuts now in train, expect to continue to see more deals across a wide range of sectors over the next 18 months in Apac.
Sidley Austin’s Ding commented: “The US Federal Reserve is expected to embark on a course of rate cuts over the next 12-18 months. The rate cut path will likely be cautious and methodical and so actual interest rates will remain relatively high for now. However, the expectation of lower interest rates in the future will prompt capital to seek places of potentially higher returns in the global capital markets, including the Hong Kong capital markets.”
This article was updated on September 24.
