New wave of IPOs expected in 2016/17

Singapore

The report - titled Taking stock: Going public in volatile times, by global law firm Reed Smith in partnership with corporate financial news group Mergermarket - surveyed 125 C-suite executives in Europe, North America and Asia. The bulk of the respondents came from private companies that are likely to consider undertaking an IPO within the next three years.

Over half (58 per cent) of the respondents said they believed this would happen in the next 12 months, with 38 per cent suggesting it would take place in the next 24 months. Many companies believe that an IPO is the best route to growth, a higher valuation, and a raised public profile, the report said.

Respondents in North America were overall the most optimistic of the three regions, with 76 per cent believing a return to previous years' IPO levels within 12 months is possible, compared with 45 per cent in Europe and 44 per cent in Asia.

The report said its survey "demonstrates that many companies are positioning themselves to launch an IPO when market conditions stabilise, either temporarily or for a more sustained period".

Despite the optimism, respondents were not unaffected by global market conditions. Almost two-thirds (64 per cent) said the recent volatility in global capital markets had made them reconsider whether an IPO was the right strategy.

Over a third (36 per cent), however, said they had not reconsidered going public at all. These respondents believe they are weathering the economic challenges, are well prepared for an IPO, can achieve their desired valuation, and are therefore ready to push the button.

For some, market conditions have affected not just the decision of whether to proceed with an IPO or its potential timing, but have left them readjusting their expectations on valuation and offering price.

Nearly half (46 per cent) said that recent volatility in global equity markets had caused them to alter elements of their IPO strategy such as pricing to attract interest and shareholder return policies to encourage investment.

In Asia, the majority (70 per cent) of respondents looking to list said China's recent economic turmoil has affected the timing of their IPOs. Among the 30 per cent who said it has not affected their strategy, most are seeking to list in other Asian markets, where volatility is more moderate.

Denise Jong, Reed Smith corporate partner in Hong Kong, commented: "It is challenging in the more established Asian markets such as Singapore and Hong Kong, in part due to the domino effect of US Fed (United States Federal Reserve) rate decisions and the Chinese slowdown, but also just the sheer base of each market is very different.

"Singapore is much smaller, while Hong Kong is a bit bigger - and so may be able to weather the storm better. However, with newer emerging markets, such as Vietnam, volatility is driven more by local conditions."

In Asia, IPO volume fell 34 per cent - from 297 in the first half of 2015 to 195 in the first half of this year - reflecting concerns about the slowing of the Chinese economy and outflows of capital from emerging markets.

Yet Asia remained the most active of all three regions in 2016, with the Chinese, Hong Kong and Japanese exchanges seeing the highest volumes, the report noted.

Global IPO volume fell 38 per cent - from a first-half 2015 total of 544 to just 339 in the first half of 2016.

Nick Cheek, global managing editor of Remark, the publishing and events division of the Mergermarket Group, said: "Investor appetite for IPOs has dulled considerably over the last 12 months.

"The reasons for the decline have been well documented including uncertainty surrounding the outcomes of both the 2016 US (presidential) election and the UK's EU referendum - where the 'leave' result has only succeeded in ratcheting up the volatility. Yet despite the uncertainty, the results of our survey suggest that companies globally are optimistic about the future direction of activity."

Almost two-thirds (64 per cent) of respondents said they plan to be ready to move quickly when an IPO window opens, despite market volatility. And 68 per cent said they have a strategy in place to mitigate the challenge of executing an IPO in the near term.

When it comes to post-IPO challenges, 59 per cent of res- pondents cited greater public scrutiny among their top three reservations, while 51 per cent said concern about their stock being subject to market volatility ranks in their top three qualms.