Enthusiasm for IPO fading away across Asian markets

The indigestion is becoming a familiar trend across India, China and Australia, making a case that companies forming a long IPO pipeline should trim their high price expectations.

More than 30 companies plan to list in either the Hong Kong or Indian markets over the next few months.

The Hong Kong list includes big names like Rusal, Las Vegas Sands and China Minsheng Banking, as well as a clutch of property firms. Reliance Infratel, a unit of Reliance Communications, and Vedanta’s Sterlite Energy are among big Indian offers planned.

“The pricing has been pretty aggressive,” said Ho Yin Pong, a Hong Kong-based Portfolio Manager at RCM Asia Pacific. “Hopefully this market volatility will prevent some of them from launching their IPO’s now.”

He said he thinks he can pick up the same stocks, especially the Indian ones, more cheaply in the secondary market.

Late last month, Deutsche Bank pulled out all stops to cover a $100 million IPO of the Indian cable television firm Den Networks, which managed to scramble through in the final hours with huge support from India’s state-run life insurance giant. “That was a real close one,” an official at Life Insurance Corp of India, which put in bids for nearly a quarter of Den Networks, said on the condition of anonymity because of the sensitivity of the situation. Deutsche Bank “did rally us to bail out the issue.” “The pricing was a tad stiff, but we did spot the long-term opportunity,” the official said. Deutsche Bank was the primary arranger for the share offering, which closed on the day another Indian firm, Indiabulls Power, fell sharply on its trading debut. A Deutsche Bank spokesman declined to comment on the deal.

Representatives of LIC, which plans to pump Rs 500 billion, or $10.7 billion, into Indian equity this year, could not be reached for comment.Investor appetite began waning after a rash of offerings in the Chinese property sector and the Indian power sector had tepid openings.

Australia has also seen a cooling in demand for new offerings, with shares of the department store chain Myer Holdings falling 9 per cent in their debut earlier this month. Its price to earnings ratio was a tad below a main competitor.

Vulnerable property listings

Asian property listings are expected to be particularly vulnerable to the softening sentiment, with at least 16 Indian developers and a number of Chinese real estate firms considering initial public offerings.

“Even if one or two of these fail, it will be disastrous for the industry, because the confidence that is gaining now will be hit,” said Pranay Vakil, India Head for the global property services firm Knight Frank.

Glorious Property fell 23 per cent on its Hong Kong debut this month, and the Shenzhen-based Excellence Real Estate Group shelved plans late last month for a Hong Kong I PO of up to $1 billion, blaming market conditions.

That should give caution to companies waiting in the wings to cash in on the equity rally this year, which has boosted the MSCI Asia-Pacific index of stocks excluding Japan nearly 60 per cent this year, despite the recent correction.

But falling markets and continuing uncertainty about the health of the economy are spooking investor sentiment. Asian markets have fallen 7 per cent from their 2009 peak last month.

“The opportunity is shrinking, fading fast. Too many at the same time,” said a banker who has helped arrange about $5 billion in new share sales so far this year for his Indian clients. The person was not authorised to speak to the media and did not want to be quoted by name.

Meanwhile, hopes for some IPO’s are still high. Korea Life Insurance Co., the country’s No 2 life insurer, may raise around $2 billion through its public offering, sources with direct knowledge of the matter said, in what would be Korea’s largest IPO since 2006. The people did not want to be quoted by name due to client sensitivities.