Equity fundraisings in Asia are expected to slow down in the near term after two straight record quarters as ‘hot money’ flows that had propped up new issuances ease amid rising volatility in markets, bankers said.
Driven by follow-on equity offerings in Hong Kong such as Chinese search giant Baidu Inc’s $3.1 billion secondary listing in March and electric vehicle maker BYD Co’s $3.9 billion share sale in January, companies raised $108.5 billion in Asia in the first quarter of 2021.
That was the highest ever in a first quarter and more than double the $49.8 billion raised in the year-ago quarter, according to Refinitiv data.
But the figures for the region, including Japan, were down by a third from the record final quarter of 2020, in the absence of big-tickets deals in China that had boosted the volume then.
Abundant liquidity and lower interest rates have largely fuelled a global capital markets rally in the last few quarters, but concerns are growing that the gains could reverse due to a pickup in inflation as vaccine rollouts lead to a reopening of economies.
Goldman Sachs Asia, ex-Japan, co-head of equity capital markets (ECM) William Smiley said while more volatility had emerged in the past six weeks, capital markets remained open which was positive in the long term for issuers and investors.
“Expectations for the second quarter are more balanced and that’s not a bad thing,” the Hong Kong-based Smiley said.
“When exuberance prevails and markets only move up, hot money chases deals and supports opportunistic activity – not the backdrop for sustained capital markets activity.”
More than half of the first quarter’s total equity fundraising in Asia was by listed companies through follow-on deals, worth $56.72 billion.
Still, the pace of new equity floats in the region surprised bankers.
“This is a very unique quarter that we have had, globally it’s probably the busiest quarter ever by the number of IPOs and the proceeds from those,” said Tiger Cong, Chinese investment bank CICC’s head of capital markets.
“In terms of the market window, the old adage that ‘you should raise money when you can, not when you have to’ still makes sense.”
Technology deals are expected to again dominate the remaining quarters of the year and investors are closely watching China’s ByteDance, the owner of TikTok, which plans to list one or more of its businesses possibly in 2021.
“The equity market plays on the growth story. TMT and healthcare are the sectors that remain hot, and these sectors are the most interesting to investors,” said Tucker Highfield, Bank of America’s co-head of Asia Pacific ECM.