China and India to take ECM limelight for rest of 2015

ECM volumes in Asia ex-Japan ex-onshore China for the first three months of 2015 hit $29.94bn, up 16% year-on-year thanks to some 281 deals. India alone saw volumes rise by 162% — although that only accounted for $7bn of business. Southeast Asia recorded a 30% jump to $5.6bn.

The figures show big improvements across much of the region, but they also reflect that much of the activity came in spurts. January saw $9.7bn, but February $6.7bn. March notched up an impressive $13.5bn.

“Activity has been sluggish,” said a Hong Kong-based ECM syndicate banker at an investment bank. “There’s been a lack of direction this year. We had a decent January, then a very weak February, and March was a bit skewed because of GF Securities. There was nothing really screaming out giving issuers and investors any guidance.”

GF Securities, which raised $3.6bn on March 31, won plaudits for being the largest IPO in Asia Pacific year-to-date, trouncing Thailand’s Jasmine Broadband Internet Growth Infrastructure Fund’s $1.7bn IPO in February.

Those deals were large, but they were also the only material ones, especially as the equity-linked market witnessed a complete drought in supply.

Bankers are now expecting some big changes, and are hoping that they can start to unblock their bulging pipelines.

“As you can see with trades like GF and Fuyao Glass Industry Group Co, which priced within weeks of each other, there were no problems around liquidity and demand,” said another ECM syndicate banker at a Chinese bank.

“Plus the performance of recent Hong Kong IPOs has been decent in secondary, which bodes well for future issuances.”

ECM action for the rest of the year will come from the likes of the Chinese FIG sector, where names such as China Huarong Asset Management and China Reinsurance are already prepping for IPOs, say bankers. Buoyed by GF’s success, other brokerage houses, insurers and banks are poised to tap equity investors in the next two quarters.

Companies in the e-commerce, renewable energy and education sectors are also expected to come to the forefront, but, unlike in the credit market (see separate story), ECM bankers are less positive about a big revival from property names after the debt problems faced by Kaisa Group Holdings this year.

They are instead eyeing outbound investment by Chinese firms as a sign of more need for capital raising, according to a head of ECM for Asia.

“We have seen more M&A happening this year, like Li Ka-shing buying O2 in a £10.25bn ($15.25bn) deal,” he said. “[These companies] should tap the equity capital market at some point, whether through rights issues or placements.”

What could also push these and other issuers quickly into ECM is the recent rally in the Hang Seng Index, which soared to a seven year high of 27,922.67 on April 8. This was largely down to China’s securities regulator allowing mainland funds to buy stocks listed in Hong Kong without an approved quota — paving the way for a flood of retail and institutional money into Hong Kong’s stock market.

The Asia head of ECM added that his bank was already seeing more enquiry from vendors wanting to sell blocks, although not many pushed the button this week, due to the short window following the Easter holidays in Hong Kong.

The possibility, however, of a very active April is high, as sellers are poised to take advantage of the boom in the market. Bankers believe there will be many opportunistic sells-off coming up in the next few weeks.

“The market’s in an absolute frenzy,” said a second ECM syndicate banker in Hong Kong. “But what it also means is that what goes up must come down. When that will happen, no one can predict, but it’s all about making hay while the sun shines and I think that’s what issuers will do in the next few days.”

The head of ECM added: “What we’re seeing is a very aggressive re-pricing of assets which could go either way. It would only be a good thing if markets don’t experience a hangover afterwards. At some point fundamentals will come back to the fore.”

Another big pocket of hope for the rest of the year is neighbouring India. The market has continued its ECM renaissance since Prime Minister Narendra Modi took control last year, ushering in a business and reform-friendly government.

The recent $1.2bn rights issue by Tata Motors is a sign of things to come, with the trade attracting a stunning nine banks in its syndicate. It is also set to be India’s second largest rights issue on record, according to Dealogic.

For its part the government kick-started its divestment programme for the 2016 fiscal year with gusto this week, netting a horde of investors for its share sale in Rural Electrification Corp (see separate story).

“This could be the first time India ends the year with volumes exceeding China’s,” said another head of ECM at a bulge bracket firm. “It is on track to break China’s 15 year dominance in Asia ECM.

“There is such a strong pent-up demand in India after two to three years of inactivity,” he added. “There are at least three or four ADRs which we know will hit the market soon.”