JPMorgan Chase & Co. (JPM:US)’s Chinese investment banking unit is “cautiously optimistic” about the second half because of a “strong” mergers and acquisitions business, its chief executive said.
Transactions will probably take place in the natural resources industries as companies continue hunting for assets overseas, especially in so-called frontier markets, said Fang Fang, JPMorgan’s investment banking head for China.
“We do have some large M&A deals in the pipeline,” Fang said in an interview in Beijing yesterday. “Hopefully they will come to the market in the second half.”
Chinese companies struck about $28 billion of deals abroad during the first half, little changed from the year-earlier period, according to data compiled by Bloomberg. That includes Shuanghui International Holdings Ltd.’s agreement in May to pay about $7 billion, including debt, for pork producer Smithfield Foods Inc. in the biggest Chinese takeover of a U.S. company.
Clients of Fang’s unit are Chinese companies seeking to raise funds or make acquisitions overseas in markets such as Hong Kong. Foreign banks in China can only underwrite stock and bond sales through joint ventures with local brokerages. JPMorgan owns a third of JPMorgan First Capital Securities Co., a venture with First Capital Securities Co.
Hong Kong may see few initial public offerings in the second half. The city’s market will probably be dominated by equity-linked and secondary offerings through the end of the year, as investors shun first-time sales on concerns that China’s economic growth will slow further, Fang said.
“We don’t believe there will be many large IPOs cooking” in Hong Kong in the second half, Fang said. “The IPO market will be dominated by a lot of smaller deals, not the gigantic” deals valued at more than $1 billion.
Companies raised more than $14 billion through IPOs in Asia in the second quarter, compared with about $3 billion in the first three months of the year, the least since 2009, as billion-dollar deals from Sinopec Engineering Group Co. (2386) and China Galaxy Securities Co. in Hong Kong offset an absence of share sales in China. There were no IPOs in the mainland, where regulators froze deal approval in October to review listing rules.
The fixed-income market is returning to life, Fang said, after coming to a standstill in June as the worst cash squeeze in at least a decade roiled markets.
“Investors and issuers are now gradually coming to a new equilibrium -- they’re transacting again, starting last week, after five weeks of drought,” he said. “Banks that are more sophisticated in managing interest rates are still willing to lend” in the syndicated market.
More Chinese companies may attempt to sell shares in the U.S. this year, Fang said.
“With the U.S. domestic valuations getting rich and with the cleanup of some of the bad-quality Chinese companies listed in the U.S., investors will come back to the market,” he said. “We will see selective deals get done in the second half and going forward.”
LightInTheBox Holding Co. (LITB:US) in June became the second Chinese e-commerce company to complete a U.S. IPO in 15 months, after Vipshop Holdings Ltd. (VIPS:US) raised $71.5 million in March 2012. The number of IPOs by Chinese companies declined to three last year, from 13 in 2011 and 38 in 2010, data compiled by Bloomberg show.
The IPO market in the U.S. for China-based companies almost shut over the past two years after short sellers including Muddy Waters LLC made allegations of fraud and accounting irregularities.
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