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Expectations lowered, Asia IPOs make come-back

Expectations lowered, Asia IPOs make come-back
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First Published: Wed, Jun 04 2008. 12 49 PM IST

An attendant directs traffic at a Hindustan Petroleum gas station in Mumbai.  Bankers say Energy-related firms and companies poised to benefit from rising spending power in China and India will contin
An attendant directs traffic at a Hindustan Petroleum gas station in Mumbai. Bankers say Energy-related firms and companies poised to benefit from rising spending power in China and India will contin
Updated: Wed, Jun 04 2008. 12 49 PM IST
Hong Kong: The market for Asian IPOs has reopened after a dismal start to the year, but with pricing power in the hands of investors, issuers are ratcheting down their fund-raising expectations.
Last week, three companies — Pou Sheng International, Central China Real Estate Ltd and Xtep International Holdings — raised a combined $784 million ahead of Hong Kong listings, but all priced their offers at or near the bottom of their indicated range.
“What we’re seeing is issuers becoming a lot more sanguine and reasonable about the price that they want to achieve,” said Kenneth Poon, co-head of Asia capital markets origination at Citigroup.
After dropping 14% in the first three months of the year, the MCSI Asia ex-Japan stock index has risen 4.5% since the start of April, luring a handful of IPO candidates back to the market.
An attendant directs traffic at a Hindustan Petroleum gas station in Mumbai. Bankers say Energy-related firms and companies poised to benefit from rising spending power in China and India will continue to drive initial public offerings in Asia. (Photo: Adeel Halim / Bloomberg)
Issuers had scrapped or delayed billions of dollars worth of Asia deals earlier in the year.
Firms in Asia outside Japan have raised $19.3 billion in IPOs this year, 30% less than $27.6 billion raised at the same point in 2007, according to Thomson Reuters data.
Bankers said the pipeline for offerings is crowded, but getting deals done means they need to be priced attractively.
“The demand is still going to be fickle, price-sensitive, and also quality-driven, which is not a bad thing,” Poon added.
Issuers also need to cross their fingers that markets don’t sour in the middle of their deal.
“It’s all about picking your windows, which can be challenging when it comes to IPOs given the longevity of the process,” said James Fleming, co-head of equity syndicate for Asia at UBS.
Energy-related firms and companies poised to benefit from rising spending power in China and India will continue to drive initial public offerings in Asia, bankers said.
“Near-term investor focus will continue to be directed at China and India, notably for infrastructure and domestic consumption opportunities,” said Justin Haik, a managing director in global capital markets at Morgan Stanley.
Prospective issuers include Hong Kong dry bulk carrier Maritime Capital Shipping, which began pre-marketing on Monday for a Singapore listing in July to raise roughly $300 million, and No. 2 Indonesian coal miner PT Adaro Energy, which is looking to raise $200 million this month.
In India, UTI Asset Management began sounding out investors last week on a $500 million IPO that it shelved earlier in the year. Another Indian firm, Indiabulls Properties Investment Trust, plans to raise up to $287 million in a Singapore listing.
Meeting of the minds
But deals need to be valued at steep discounts to peers.
Chinese sportswear retailer Xtep priced its $286 million IPO at 17 times forward earnings, compared with the 21 times commanded by top Chinese rival Li Ning Co Ltd or the 30 times PE for China Dongxiang, which licenses Kappa-brand sportswear in China.
Bankers were heartened last week when Indonesian coal producer PT Indika Energy raised $300 million when it priced its Jakarta IPO at the top of its range on heavy demand.
UBS’ Fleming said issuers and investors in Asia have come closer to reaching agreement on valuations.
“We’re seeing a meeting of the minds now, and that is why you are seeing deals getting done,” he said, adding that expectations vary by country.
“For example in Indonesia they’re pretty reasonable about adjusting quickly to where the market clearing level is and meeting that price,” Fleming said.
“In other countries, such as India, that recalibration isn’t happening as fast. As a result there’s a delta between where the market is and where the issuers are, and that’s why India has not seen the step up in issuance in the past four to five weeks that other markets have,” he said.
But even Indian issuers appear to be lowering expectations.
ICICI Securities, a unit of ICICI Bank, had hoped to raise as much as $7 billion in an IPO this year but bankers pitching for its IPO mandate said the company is reining in its ambition and may now look to raise closer to $5 billion.
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First Published: Wed, Jun 04 2008. 12 49 PM IST
More Topics: IPO | Asia | Issue Price | ICICI Securities | Citigroup |