Publicly traded companies in Asia and their investors raised $54.4 billion in share sales this year, a first-quarter record as a stock market rally allowed owners including Japan’s government and CVC Capital Partners Ltd. to unload stakes.
The appetite for shares in listed companies, with public track records that buyers can scrutinize, contrasts with a dormant market for initial public offerings. Uncertainty about global economic prospects also drove a preference for so-called block trades, sales to fund managers that can be completed in a matter of hours rather than the weeks or months an IPO takes.
“Block trades can be done over a very quick time frame and the execution risk is much less than for something like an IPO process which can stretch out over several months,” said Stuart Byrne, head of equity capital markets at law firm Clayton Utz in Sydney. “Many companies aren’t quite ready to sign up for a six-month IPO process due to uncertainty over where the market will be when the sale actually takes place.”
Buoyed by a 5 percent gain in the MSCI Asia Pacific Index (MXAP) in the first three months of the year, sellers raised $11 billion through block trades in the Asia Pacific region, data compiled by Bloomberg show. That’s up 53 percent from the start of 2012, the data show.
The sales were boosted by inflows into regional stock funds, said Jeff Zajkowski, JPMorgan Chase & Co.’s head of equity capital markets for the region. With about $50 billion added to 11 Asian equity markets this year, according to data compiled by Bloomberg, the market for block trades “is wide open,” he said.
The first-quarter tally for additional share sales, including block trades, is the highest for any quarter since the final three months of 2009, when companies and investors in the Asia Pacific region raised $55 billion, the data show. The largest sale this year was of an $8 billion stake in Japan Tobacco Inc. (2914), which Japan’s Ministry of Finance sold at a two percent discount to its market price on March 11.
The benchmark Nikkei 225 (NKY) Index is up more than 40 percent since a rally that began in mid-November, while the MSCI Asia Pacific Index has gained about 12 percent.
The gains encouraged sellers including CVC, which together with Lippo Group raised $1.3 billion selling a stake in Indonesia’s PT Matahari Department Store in March. Carlyle Group LP (CG:US), the second-largest private equity firm by assets, took in $796 million for its stake in China Pacific Insurance (Group) Co. in January.
“There’s a lot of money out there to be put to work and that is why you’re seeing so much activity,”said Guy Fowler, head of investment banking for Australasia at UBS AG in Sydney. “Many vendors who have believed for some time the stock has been undervalued are now happy to look at trading.”
Companies have also moved to take advantage of the demand for stocks to replenish their coffers. In Hong Kong, China Petroleum & Chemical Corp. raised $3.1 billion from a share sale in February to fund overseas acquisitions, while Evergrande Real Estate Group Ltd., a property developer, sold $561 million of stock in January to repay debt.
At the same time, proceeds from Asia-Pacific IPOs tumbled to $5.7 billion in the quarter, the lowest in almost four years, the data show. Additional share sales outpaced IPOs by a factor of seven -- the highest since the second quarter of 2009, during the depths of the global financial crisis.
The drop in IPOs took a toll on investment-banking revenues, with fees from stock sales in the region dropping to an four-year low of $553.4 million, according to New York-based researcher Freeman & Co.
First-time share sales typically yield higher fees. When Japan sold the Japan Tobacco stake it paid banks a fee of 0.531 percent of the deal’s size to manage the sale, a government official said last month. That compares with an average of 2.86 percent paid to underwriters of IPOs in the country last year, data compiled by Bloomberg show.
Still, companies that have completed IPOs in the region have fared well, rising an average of 31 percent since their debut, data compiled by Bloomberg show. This may herald a rebound in such sales later this year.
“If some of the larger IPOs trade well after pricing, the market would see a greater level of activity in the second half,” JPMorgan’s Zajkowski said.
To contact the reporters on this story: Brett Foley in Melbourne at firstname.lastname@example.org; Fox Hu in Hong Kong at email@example.com
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