Hong Kong

AS IN the US, initial public offering (IPO) activity out of Asia has had its strongest-ever start to a year. That frenzy for new shares is likely to taper off as demand falls back to earth in the next few months.

Asian companies, like their global peers, notched their best first quarter for listings ever, thanks to a flood of liquidity during the pandemic, super-low interest rates, and rallying stock markets.

The firms raised US$49.3 billion through first-time share sales at home and abroad - a 154 per cent jump over the same period in 2020.

IPOs globally raised an unprecedented US$215 billion, with almost half of that haul coming from the record wave of issuance by special-purpose acquisition companies in the US.

Now, a global rotation out of highly-valued tech and health-care stocks that have dominated market activity, as well as fading excitement around special-purpose acquisition companies (SPACs) in the US, is clouding the outlook for new deals.

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"Inevitably, there is a mark to market of comparable valuations," said William Smiley, co-head of equity capital markets at Goldman Sachs Group in Asia excluding Japan.

"In terms of our pipeline, there hasn't been any significant impact from the recent rotation, but opportunistic issuance may have decelerated."

Asia's IPO space faces an added challenge: the travails of Chinese tech firms, which dominate fundraising in the region.

These companies are facing a crackdown against monopolistic practices at home and are also in focus as US-China tensions keep rising.

Last month, for instance, the US moved forward with a law that could result in Chinese firms that do not comply with US auditing standards being kicked off American exchanges.

The red flags are already there, with the investor mania seen earlier this year for deals like the one by Chinese TikTok rival Kuaishou Technology starting to die down.

Chinese fintech company Bairong, which raised US$507 million, delivered the worst debut in three years among US$500-million-plus Hong Kong IPOs when it fell 16 per cent last Wednesday.

US-listed Chinese search giant Baidu and video-streaming service Bilibili raised a combined US$5.7 billion through secondary listings in Hong Kong in March but had lacklustre debuts.

In contrast, investors were seen scrambling for a piece of Kuaishou's US$6.2 billion Hong Kong IPO, the biggest listing globally so far this year, and South Korean e-commerce giant Coupang's US$4.6 billion float.

That said, the muted investor appetite for listings is not affecting the queue of hopefuls.

Online music company Tencent Music Entertainment Group, micro-blogging service Weibo and online travel service Trip.com are among the US-traded Chinese companies seeking so-called "homecoming" listings in Hong Kong.

These secondary listings, seen as a hedge against Sino-American tensions, raised US$17 billion in Hong Kong last year and have amassed US$6.4 billion so far in 2021.

"The secondary listing trend will continue but what should be interesting to see is whether new issuers who ultimately want to get to a dual listing, perhaps consider seeking a dual primary listing in Hong Kong and the US from the start rather than doing a primary US listing, waiting two years and then coming to Hong Kong for the secondary listing," said Francesco Lavatelli, head of equity capital markets for Asia-Pacific at JPMorgan Chase & Co.

Tech and health-care firms make up the bulk of the listing pipeline in Asia, say bankers, even without the "homecoming" cohort, many of whom opted for US listings because of the American investor base's greater familiarity with new economy stocks.

Among them: health-care startup WeDoctor, which is planning a multi-billion dollar Hong Kong IPO and China's Uber-like startup Full Truck Alliance, which is looking into a US$1 billion US listing.

"The pipeline remains quite robust but is centred around tech and growth stocks, which are obviously seeing a little bit of a re-rating," said Tucker Highfield, co-head of equity capital markets for Asia Pacific at Bank of America.

"The thesis of good companies being able to buck the trend of volatility will continue and there's capital available."

Ultimately, less frothy markets and a cooling of the IPO investor mania may actually be welcome.

"Entering a more balanced market environment is not a bad thing. It can extend the issuance cycle and work to keep excesses in check," Goldman's Mr Smiley said. "If there is going to be correction, you want it to be fast. A prolonged downturn kills issuance." BLOOMBERG