Thursday, December 22, 2011

Asia-Pac stock sales at 3-yr low in 2011, UBS loses crown to Goldman

Larger Smaller Reset HONG KONG (Dec 22): Stock sales in Asia Pacific plunged to a three-year low in 2011 and the downturn is expected to last well into 2012 as weak performance by most of the IPOs in the region makes it harder to attract investors to new deals.

Nearly 75 percent of initial public offerings in Asia ex-Japan, larger than $250 million, are trading below their offer price, and fee revenues for banks have plunged in the second half.

With a spike in volatility unseen since the 2008 global financial crisis, 2011 also marked the first time in seven years when UBS lost the top spot in equity underwriting in the region to rival Goldman Sachs.

After a busy first half that saw massive offerings from commodities giant Glencore , Hutchison Port Holdings Trust and fashion house Prada SpA, demand evaporated in the second half, with dozens of deals pulled or slashed.

Fund managers remain wary of taking on the risk of buying into public offerings on concerns over Europe's debt crisis and slower growth in China. Investment bankers say risk appetite is not expected to return soon to the market.

"Investors had difficulty finding ways to make money in the equity capital markets in 2011. They are going to be more cautious in 2012 as a consequence," said Steven Barg, co-head of Asia ex-Japan equity capital markets at Goldman Sachs.

"Next year, and specifically the first half, is going to be very difficult structurally."

Equity issuance in the region excluding Japan tumbled 42 percent in 2011 from a year earlier to $195 billion, the lowest since the $111.4 billion recorded in 2008, according to Thomson Reuters data.

IPO deals faced a worse setback, down 51.5 percent to $80.3 billion, the smallest amount raised since 2009, data showed.

Goldman, which worked on four of the five biggest IPOs of the year in Asia Pacific, underwrote $14.9 billion worth of deals. UBS, which scored $12.03 billion this year, had been in the top post since 2005.

Chinese firms Ping An Securities and Guosen Securities raked in more in underwriting fees than any of the international giants in the region, with $231.7 million and $217.8 million respectively, according to estimates from Thomson Reuters/Freeman Consulting.

UBS, despite losing out to Goldman in dealmaking, came third with $215.6 million in estimated fees, followed by the New York-based firm's $207.9 million.


Hong Kong has been in the limelight recently with the biggest IPOs in the world and public offerings of famous luxury brands. When it comes to performance, however, investors would have earned much more buying into South Korean and Malaysian offerings in 2011.

South Korea was home to three of the 10 best-performing offerings in 2011, Thomson Reuters data showed. Malaysia boasted two top gainers.

"In Korea there is a lot of risk taking still, there's plenty of domestic money looking for investment opportunities. Obviously that's driven by a very strong performance of the Korean economy," said Josef Schuster, founder of Chicago-based IPO investment firm IPOX Schuster LLC.

Korea Aerospace Industries Ltd led the pack among IPOs in the region. The company, which develops fighter jets and produces parts for companies including Boeing, surged about 148 percent since going public in June in a $520 million deal.

Autoparts maker Hyundai WIA is up about 114 percent since its $466 million IPO in January, while electronics retailer Himart climbed 35.4 percent after a $384 million offer in June.

"Historically, the Korean IPOs are priced at a huge discount. They are cheap and they are priced to go," said Kester Ng, head of equity capital for Asia-Pacific at J.P. Morgan in Hong Kong.

Other big gainers in Asia this year included sugar refiner MSM Malaysia Holdings, which raised $270 million in June, and Malaysian offshore oil and gas service provider Bumi Armada. MSM is up 37.4 percent, while Bumi Armada gained 35 percent.


Companies listed in Hong Kong, Shanghai and Shenzhen accounted for all but one of the 10 worst performing medium-to-large IPOs.

Stock offerings in Hong Kong sank 56.7 percent in 2011 from 2010, partly due to the weak performance of companies that have gone public. The slump in shares has been widespread in the region.

Out of the 63 IPOs above $250 million in Asia Pacific, only 16 are trading above their offer price. The downturn is reflected in the broader market, with the MSCI's index for Asia ex-Japan down about 20 percent this year as concerns over Europe's debt troubles worsened.

Pangda Automobile Trade Co Ltd had the worst-performing IPO of the year, down 86 percent since the company listed in Shanghai in April, while turbine maker Sinovel Wind Group sank 81 percent since its January debut.

UBS managed the Pangda offering, while Sinovel's deal was handled by Deutsche Bank's Zhong De Securities and Chinese firms Essence Securities and Citic Securities .

"It's more a matter of uncertainties needing to be resolved or partly resolved so that investors have more confidence putting money to work again," said Michael Kurtz, chief Asia equity strategist at Nomura International in Hong Kong.

For companies looking to raise funds in Seoul, Singapore or Shenzhen, the broad tumble could mean lower valuations in upcoming IPOs and potentially a longer time to listing than expected.

It would also limit their options for new capital as global credit conditions worsen.

The weak performance across the region could also reinforce caution among retail and institutional investors already unwilling to buy into new listings.

"Due to uncertainty over European debt issues, some of the IPOs' performance is not very good. A lot of the IPOs that listed are under the water, so the momentum for IPOs is not very good," said Patrick Yiu, a director at Cash Asset Management in Hong Kong. - Reuters

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