“Companies that don’t understand how high investors have raised the bar in terms of management quality may find it harder to raise the funds they need.”
Greater China IPO Leader,
Ernst & Young
Greater China’s IPO markets were looking solid at the start of 2011, but the optimism didn’t last. Activity fell dramatically at the year’s mid–point as worries about Europe’s sovereign debt problems and slower growth in the US and other nations hit investor confidence.
Funds raised in 2011 fell 47% compared to the year before, reaching just US$68.4b. Activity improved at the end of the year and funds raised in 2011 still exceeded the 2009 total by 33% and listings from private enterprises primarily dominated the IPO market.
China remains the global IPO powerhouse. The Hong Kong, Shenzhen and Shanghai stock exchanges were once again among the top five global markets, ranked by capital raised. Despite a very tough year, IPO activity on Greater China exchanges accounted for 40% of global IPO funds raised in 2011.
A big wave of IPOs came to Hong Kong in December, making it one of the world’s leading global IPO markets by IPO funds raised last year, alongside the New York Stock Exchange. It is interesting to note that in addition to state owned enterprises, entrepreneurial high growth companies are accessing the Chinese capital markets as a source of growth capital.
The days of high multiple valuations are over, for now. Many Chinese companies shelved their IPO plans in 2011 when valuation multiples declined. These companies will likely come back to the markets in 2012, once valuations begin to better reflect their underlying business prospects.
But with a heavy flow of IPO deals to choose from, investors will be more careful about which ones they support and at what price.
Investors are becoming more selective
In 2012, investors are likely to ask tougher questions about the quality of corporate governance and senior management at companies seeking funds. This is good news for the long–term evolution of the markets, but it could make life tougher for companies in the short term.
Those that don’t understand how high investors have raised the bar in terms of management quality may find it harder to raise the funds they need.
Hong Kong is drawing Western companies
Expect to see more foreign companies using the Hong Kong market to reach Asian investors in 2012. Greater China’s biggest deal of the year saw Switzerland–based commodity trader Glencore International bring a US$10b listing to Hong Kong.
Italian fashion house Prada SpA boosted its profile among Asia’s luxury brand buyers with a US$2.5b deal, also in Hong Kong. With continuing economic uncertainty in Europe, Hong Kong will be an increasingly attractive destination for Western companies in 2012.
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