IPOs in Asia grab record share of funds as US offers dry up

NEW YORK: Record demand for initial public offerings (IPOs) in Asia is reducing the share of US IPOs to an all-time low as companies from China to Malaysia and India flood the market with more equity than ever.

Jiangsu Rongsheng Heavy Industry Group Co, Petronas Chemicals Group Bhd and QR National are preparing to sell more than $10 billion of shares as soon as next month, adding to the $134 billion raised in 2010, data compiled by Bloomberg show.

Hong Kong’s AIA Group and Coal India raised almost the same amount this month as all US deals this year, as the share of American IPOs dwindled to 11%. Investors are paying 24 times next year’s profits, twice the average for US equities, because revenues for newly listed Asian companies are forecast to increase five times as much, according to William Blair & Co and Deltec Asset Management.

The world’s fastest economic growth and record-low bond yields will boost demand for Asian IPOs as American rivals recover from the longest recession since the Great Depression, Deltec says. Asia “is an environment ripe for raising capital and ripe for investing”, said Joe Carson, a New York-based economist who helps oversee AllianceBernstein LP’s $1.2 billion Global Thematic Growth Fund.

 “It’s based on expectations of strong growth.” The region’s share of initial offerings has increased almost six-fold since 1999, when it accounted for 12% of sales. The amount raised by US IPOs has declined 75% in the same span, according to data compiled by Bloomberg. Chinese IPOs led the increase, attracting $76 billion this year.

Jiangsu Rongsheng Heavy, the shipbuilder based in China’s Jiangsu province, is seeking to sell as much as $1.5 billion in shares by the end of the year, according to three people familiar with the IPO. Six other Chinese offerings have already raised at least $1 billion this year, the data show.

Agricultural Bank of China of Beijing sold $22.1 billion of shares in Shanghai and Hong Kong last quarter in the world’s biggest IPO on record. No company in the US has raised more than $700 million this year. Companies from China and India account for six of the 10 best-performing IPOs on US exchanges this year, data compiled by Bloomberg show. Gurgaon-based MakeMyTrip, India’s largest online travel company, has surged 173%, while Jinko-Solar Holding Co, the maker of silicon wafers in China’s Jiangxi province, gained 155%.

The Standard & Poor’s 500 Index and the MSCI Asia-Pacific Index have both advanced less than 7% this year. Asian companies that completed IPOs this year have climbed 36% on average, data compiled by Bloomberg show. “What the market needs and wants is a lot more IPOs coming out of China,” said Jeff Urbina, who oversees emergingmarket strategy at Chicago-based William Blair, which manages more than $41 billion.

 “That’s where the growth is.” IPOs in India are on pace to eclipse the all-time high of $8.2 billion in 2007, led by Kolkata-based Coal India’s record sale this month. The government raised $3.4 billion after investors bid for more than 15 times the shares available. Coal India was the first of eight sales the government plans by March.

Petronas Chemicals, a unit of Malaysia’s state oil company, is seeking $4.2 billion next month in the Southeast Asian nation’s largest initial offering ever, two people familiar with the deal said this week. That’s double the $2.1 billion that 26 Malaysian IPOs have raised in 2010 and would lift the nation’s sales above last year’s all-time high, Bloomberg data show.

Australia’s state of Queensland is seeking A$5.05 billion ($4.97 billion) selling shares of coal-train operator QR National. The IPO would be the nation’s biggest in more than a decade. Brisbane-based QR National plans to announce the price of its sale by November 22, according to its offering document. Shares of Asian IPOs have become more expensive, rising to 28 times next year’s profits from 24 times when sold, based on the 382 companies with analyst estimates compiled by Bloomberg.

Emerging-market equities remain in favour – S&P Equity Research

THE stocks trading in some of the fast-growing emerging markets (EMs) of the world remain among international favorites for Alec Young, International Equity Strategist at S&P Equity Research Services (ERS), due to positive demographic trends, lower consumer, corporate and government debt, and valuations. Young discussed his international investment outlook during the recent ERS’ third quarter 2010 webinar entitled “Are We Headed for a Bear Market?”

“We think EM’s relatively low 13% share of free-float adjusted global equity-market capitalization is likely to grow briskly as it remains well below their much larger shares of gross domestic product (GDP), population, natural resources, and global currency reserves,” Young says.

Young does not expect to see a bear market for overseas stocks and thinks returns for United States investors in certain international markets may benefit from ongoing weakness in the greenback. In particular, he thinks EM currencies are likely to continue appreciating vs. the United States dollar, further enhancing the dollar denominated EM equity returns earned by United States investors.

With regard to valuations, which Young categorizes as lower than their developed peers, EM equities have the potential for higher valuations as risks likely recede gradually over time, he believes. For instance, Young thinks that in 20 years, Brazil, Russia, India, and China, known as the BRIC nations, will not be emerging markets “but rather developed markets afforded the same valuation premium currently associated with any of today’s first world markets.” The risks to investing in EM equities, he says, are lower transparency and liquidity.

For income-focused investors, Young also sees overseas equity-yield opportunities in developed markets. He believes risk-tolerant United States income-oriented investors should take advantage of the summer’s global equity volatility to incorporate attractively valued, high-quality developed European and Asian equities into their broader yield-generation strategies.

“Equity dividend yields are more competitive than ever, especially overseas, where buybacks soak up less corporate cash,” he says.

Income-oriented investors are faced with bond yields flirting with record lows throughout the developed world and what Young sees as little room for long-term upside. He not only sees better long-term value in stocks versus bonds, he also thinks equity dividends are likely to keep pace with inflation over time, in contrast to government-bond payouts whose recent paltry coupons are fixed.

As Young points out, as a result of trailing bonds for so long, the spread between the earnings yields of worldwide developed stock markets and their respective 10-year government bond yields are currently as wide as they have ever been.

“While bonds may enjoy near-term momentum, we believe risk-tolerant yield-oriented investors need to focus more on long-term value as their income needs will likely persist over time. If interest rates start to rise, the resulting decline in bond prices would quickly negate today’s low payouts, in our view,” Young notes.