HONG KONG (June 29): Chinese tech titans preparing to float in Hong Kong and New York are likely to face a bumpy ride if trade tensions between the world's two biggest economies persist, potentially dragging on capital raisings after a stellar first half.
While so far there has not been any significant impact from the US-China trade spat, with funds raised in Asia-Pacific equity capital markets (ECM) at three-year highs and blockbuster IPOs such as that by Xiaomi, there are indications smaller deals are getting hurt.
"What prospective equity issuers can fall victim to in the case of US-China trade tension is the sentiment across the broader equity markets, because investors put trade wars among their top two or three concerns," said Ashu Khullar, head of Asia Pacific capital markets origination at Citigroup.
This week, China's Qeeka Home, a provider of online interior design services, postponed a US$278 million Hong Kong IPO, while in New York, Uxin, a Chinese second-hand car sales site, halved the size of its planned float to US$225 million.
Both changes were due to challenging markets, Thomson Reuters publication IFR reported.
"If volatility continues to rise alongside secondary market deterioration, it is fair to assume that smaller deals may attract less interest due to liquidity concerns," aid Alex Abagian, Morgan Stanley's head of equity syndicate for Asia Pacific, excluding Japan.
MSCI's broadest index of Asia-Pacific shares outside Japan has shed about 8% from a June peak, on course for its fourth month of losses in five, amid tit-for-tat reprisals from the United States and China.
But overall, equity capital markets in Asia have been "very receptive in terms of issuance ... there have been a bunch of very important IPOs, as well as large block deals", Khullar noted, referring to recent equity sales worth billions.
Companies and investors have this year sold equity worth US$141.6 billion in Asia-Pacific firms, up 22% year-on-year and the highest since the first half of 2015, Thomson Reuters ECM data shows.
Among recent big deals was the May US$4.3 billion float of Foxconn Industrial Internet — China's biggest onshore IPO in nearly three years — and the US$1.2 billion listing of Mercari, a rare Japanese unicorn.
Shares of the flea market app operator jumped more than 70% on debut.
Bankers are, for now, keeping their eyes peeled for the planned coming-out parties for a series of big-name Chinese unicorns, or startups with a valuation above US$1 billion.
Smartphone giant Xiaomi raised US$4.72 billion after pricing its Hong Kong IPO at the bottom of an indicative range on Friday in the world's biggest tech float in four years, people close to the transaction said.
Other pending deals are floats worth about US$4 billion apiece from Tencent Music, China's largest music-streaming service, and Meituan Dianping, an online food delivery-to-ticketing services platform.
China Tower, the world's largest mobile mast operator, is also looking to raise up to US$10 billion in the coming months.
Many of the deals follow recent landmark listing reforms in Hong Kong that pave the way for tech firms with weighted voting rights and also for early-stage biotechnology companies to list.
Wang Sheng, deputy head of Chinese investment bank CICC's global investment banking, expects IPO volumes to double in Hong Kong in the second half from the first six months.
At least 10 biotechs are planning Hong Kong floats and some have dropped US IPO plans in favour of the city.
Asia's ECM volume, however, is unlikely to be helped in the near term by Beijing's efforts to lure foreign-listed Chinese tech giants back home via new China depositary receipts (CDRs), a process whose details are still being finalised.
"A lot of people under-appreciate the complexity of doing CDRs — it's not just another simple form of stock offering," said James Wang, head of China ECM at Goldman Sachs.
"It is a significant development that may take some time to get all the pieces."