Where Is Asia's Equity Capital Market Headed in 2022?

In this week’s episode of Dealcast, we’re looking at equity capital markets (ECM) activity in Asia during the first quarter of 2022. Joining host Julie-Anna Needham is Perris Lee, ECM editorial and insights editor for Asia at Acuris. Dealcast is presented by Mergermarket and SS&C Intralinks.

In this episode, you’ll learn about:

• ECM performance in Q2 2022
• Status of SPACs listings in the region
• An overview of Asia’s struggling IPO market
• What’s ahead for the ECM market in Asia

[MUSIC PLAYING] JULIE-ANNA NEEDHAM: Welcome to Dealcast, the weekly M&A podcast presented to you by Mergermarket and SS&C Intralinks. I'm Julie-Anna Needham, a business journalist who's been covering M&A for more than a decade. In this episode, we're looking at ECM activity in Asia during the first part of 2022. I'm joined by ECM Editorial and Insights Director for Asia, Perris Lee. Hi, Perris. Thanks for joining me today.

PARIS LEE: Hi, Julie-Anna. It's good to be here.

JULIE-ANNA NEEDHAM: To begin, could you sum up the ECM performance for Asia in the first quarter of 2022.

PERRIS LEE: OK, the first quarter of this year has been quite disappointing. Although it's not something that's not totally unexpected. Because the past two years were like banner years for the markets. So we do expect some kind of pullback this year, but not with this kind of magnitude.

So if you look at the overall ECM market, the primary markets actually plunged to multi-year lows in the first quarter. That's not — that's because of the falling share prices globally. And to give you a quick number, the MSCI Asia Pacific Index has fallen 9 percent year to date. And it's now actually trading at the lowest level since October 2020.

JULIE-ANNA NEEDHAM: And what are the reasons behind that?

PERRIS LEE: The reasons? There are many reasons, actually, macro and micro. You look at the macro aspect, so we have concerns. There are concerns about how the global central banks, especially FET, would tighten interest rates. The pace and the magnitude of rate tightening, that's one thing.

And then secondly, we have this development of China's property markets. The second thing, if you look at Asia regional factors, and then as well as Beijing government's policy to its various industries, especially the big tech companies. And last but not the least, we have this Russia war against Ukraine, that has only made the inflation worse for them.

JULIE-ANNA NEEDHAM: And can you talk us through some of the numbers that back up what you've said?

PERRIS LEE: Certainly. So year to day, as of yesterday, actually, in Asia, we have priced 104 IPOs in total and raising 15.72 billion. And that would be the worst quarter since the second quarter of 2020, when we printed 14.8 billion worth of IPOs. And then, that's on the IPO market.

And then if you talk about the full-on markets, no, that's not any better. Year to date, we had 190 full-ons deals being priced. And they raised a total of 13 billion. And that's down sharply from the first quarter 2021. That's a year ago's 400 deals being priced. And they raised a total of 41.5 billion.

But if you go, if you move away from the pure equity markets, you look at the equity league bond markets, they also took a hard hit. So far this year, we only priced four deals. And they raised a total of 1.23 billion. And if you compare with the last quarter, that's the final quarter of last year, we priced 12 deals. And they raised a total of 6.15 billion. So that's a very big difference. If we look at-- talk about market decline.

JULIE-ANNA NEEDHAM: And is this just largely attributed to last year being a bumper year?

PERRIS LEE: Exactly, exactly.

JULIE-ANNA NEEDHAM: And could you talk through some of the highlights of some of the individual markets and some of the IPOs that have taken place, please.

PERRIS LEE: OK, certainly. So let's talk about Hong Kong, Hong Kong being the hub of ECM in Asia. So, like, so far this quarter, the city has only priced 10 IPOs. And the amount they raised is very small. It's only 1.51 billion. So if-- from now until the end of March, there's no further IPO being priced. This could get probably the worst quarter since the first quarter of 2013. That's almost eight, nine years ago.

JULIE-ANNA NEEDHAM: And so, does that mean that we're close to the bottom with this poor quarter in the first quarter of 2022?

PERRIS LEE: I would like to-- I would be tempted to say yes, but the answer is no. We have talked to some investors in Asia. There's actually, right now, an IPO being opened right now in Hong Kong. That's Ferretti, which is an Italian yacht maker. So the appetite is small. So as we talk to some investors based in Hong Kong, many actually haven't invested in any IPOs, in any Hong Kong IPOs so far this year. So think about how bad the situation is.

And according to some investors, so for them to open their purse again, they would wait until maybe the Hang Seng Index to return to 27,000 or 28,000 point kind of level. And where is it now? It's barely 22,000. So that's still a long way to go for the market to recover.

JULIE-ANNA NEEDHAM: And what about looking at markets other than Hong Kong and China?

PERRIS LEE: OK, so last year we actually had two markets that stood out. That is South Korea and India. So they actually have investors and bankers makeup in a way in Hong Kong sort of slack. So if you look at South Korea, they actually priced the largest IPO this year, which is LG Energy. They raised 10.7 billion in January.

So the stock has performed quite OK. Right now, it has increased a bit. But that kind of increase, if you compare with how stout the IPOs performed last year, it's very minimal. So I think, in general, whether it is Hong Kong or elsewhere in Asia, the risk appetite is rather muted.

JULIE-ANNA NEEDHAM: And it is such a big region with lots of countries. And we see macroeconomic factors affecting all those countries differently, don't we?

PERRIS LEE: Yes, that's right. So if you talk about Hong Kong and Korea, as we mentioned just now, they are in that market for Asia. So what about Southeast Asia? So Southeast Asia, we actually look at a block of maybe, I would say about a dozen economies. So that is something, there's something interesting going on right now in South Asia.

So in the past, it's like a laggard, in terms of ECM activities in the region. But the past two years, thanks in part to this COVID situation, which helped boost a lot of domestic demand, and thanks to the huge populations in many of these Southeast Asian countries, they actually helped. Those ECM activities in these countries picked up.

So in Indonesia, for example, they priced Bukalapak Email, which is a super app in Indonesia, last year. And that was the largest IPO ever for Indonesia last year. And right now, which is this week, actually, they closed just yesterday, the institutional books for you, 1.26 billion IPO of GoTo Gojek Tokopedia in Indonesia.

And we had a story last week, which says that the demand for that IPO has been great. Because valuations has-- the issue has managed to cut the valuation expectation to levels that is very acceptable to investors. And at a time when there's not much going on in Northeast Asia, that name has certainly been very popular.

JULIE-ANNA NEEDHAM: Great, thank you. Can we turn our attention to SPACs. This is obviously a huge trend we've seen, particularly in the US, over very recent years. What kind of activity are you seeing in the Asian markets?

PERRIS LEE: Over the past year I think we have seen Hong Kong and Singapore competing to be the first-ever exchange for SPAC listings in Asia. And there were a lot of consultations going on between the exchangers, the market regulators, and the investors. And then, unfortunately, or fortunately, Singapore made it to be the first-ever SPAC market in Asia. They opened last year. And then Hong Kong followed suit this year.

And then there's this SPAC, Aquila Acquisition, which was listed on the Hong Kong Exchange recently. And that's the first ever SPAC to be listed on the Hong Kong Exchange. The SPAC, unfortunately, and that the debut session was 1% lower, which is not unexpected because the SPAC was set out to raise about 300 million. But they only managed to pocket 128 million.

So that shows that, I mean, it's not SPAC specific, but it's more like a macro environment. It's not there, the prices are not there. So demand was not there, to begin with, which is why the secondary performance was not as exciting as we expected it to be.

JULIE-ANNA NEEDHAM: And do you think that others were watching this first one in Hong Kong to see how it performs, see what the appetite is. Will there be others waiting to Follow

PERRIS LEE: There is, at the moment, about a dozen other SPACs working on their respective listings at the moment. I'm not sure when that would come online. They might be waiting for the market to-- the market reserve appetite to recover further before they go list up. But definitely, there is a number-- quite a decent number of SPACs waiting to be listed on Hong Kong.

JULIE-ANNA NEEDHAM: Great, thank you. And then, looking more broadly again at the wider ECM market across Asia, what do you anticipate seeing next?

PERRIS LEE: So we, as we mentioned just now, we are actually seeing this shift of market gravity from Northeast Asia to Southeast Asia. So we are actually focusing quite a bit of our time on the activities in Southeast Asia. So other than GoTo Gojek Tokopedia, that is, I know, opening right now in Indonesia. And that actually follows a more than 200 million IPO that was priced in Malaysia earlier.

And then looking further down the road, we are actually expecting another big slice IPO coming out of Thailand. That is from aCommerce group's IPO. And the company actually expects to be listed later this year or next year. But what's interesting is there was a local press report earlier this month, saying that the company is looking at a valuation of 130 billion by 2025, which is quite big for any Southeast Asian company, by any standard.

JULIE-ANNA NEEDHAM: Great, thanks very much, Perris. That was Perris Lee, ECM Editorial and Insights Director for Asia. Thanks for listening to this week's episode of Dealcast, presented by Mergermarket and SS&C Intralinks. Please rate, review, and follow the podcast. You can find us on Apple Podcasts, Spotify, or look out for your Mergermarket news alert. For more information, check out our show notes. Join us next week for another episode.

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