Hong Kong: Asia’s airports and container shippers will be the focus of IPOs and M&A deals in the region’s industrials sector in the near term as governments look to reduce deficits and shippers consolidate, a top Citigroup banker said on Monday.
Global merger and acquisition volumes in the industrials sector have plummeted more than 40% in 2009 to roughly $138 billion, according to Thomson Reuters data.
Despite the gloomy numbers, Asia is strong compared with Western markets, and strategically sound deals would move ahead, Michael Borch, Citi’s head of industrials, global investment banking, Asia Pacific, told Reuters.
“It is fairly well documented, what Korea is looking to do with Incheon Airport,” Borch said in an interview.
“The most likely outcome will be an IPO, but of a minority stake in the airport. The reason being that with infrastructure funds, there are only a few that are happy to buy into assets without control. The only way you can monetize an asset without control is by way of an IPO.”
Other regional governments have already tapped the markets for their airports. Beijing Capital International Airport Co, for example, is listed in Hong Kong.
“Infrastructure asset sales can contribute to deficit reduction,” Borch said.
Airports Authority of India plans an IPO next near, according to media reports. Hong Kong’s government previously had plans to privatize its Airport Authority through an IPO, but the plan has been shelved, with no clear signs of revival.
Borch added that the industrials sector would also see deals in container shipping lines.
“You’ve got an industry where you’ve seen a drop off in the transport requirement of something like 25%, at the same time where they have ordered new ships,” he said. “The volume is down dramatically and the supply side is up incredibly.”
Earlier this month, a top executive at Maersk Line, a unit of the world’s top container shipper A.P. Moller-Maersk, told Reuters the industry needed to consolidate after it suffered major losses as a plunge in world trade hit freight rates and volumes.
Some analysts expect state-backed companies such as Singapore’s Neptune Orient Lines (NOL) and China’s Cosco Holdings to lead the way in the consolidation process.
“There are way too many of these companies,” said Borch. “For us the interesting thing is to try and figure out who are the winners, and to pick the winners.”