Asian Equity Sales Unlikely to Recover This Year, UBS Says

By Jonathan Burgos

Feb. 24 (Bloomberg) -- Stock sales by Asian companies are unlikely to recover this year after slumping by more than half in 2008, as economies slow and initial public offerings dry up, a senior UBS AG banker said.

Share sales by Australian, Chinese and Singaporean companies will likely dominate fundraising this year, said Sutha Kandiah, joint head of equity capital markets in Asia at UBS. The value of equity capital market transactions in the region plunged 53 percent to $109 billion in 2008, with initial public offerings falling 71 percent to $22 billion, according to data compiled by Bloomberg.

“Volumes will be flat to down this year but I don’t think we’ll be down 50 percent,” Singapore-based Kandiah said in an interview on Feb. 18. “We’re starting from a very low base.”

Equity fundraising evaporated last year as the global financial crisis prompted stock markets to plummet, caused the collapse of Lehman Brothers Holdings Inc. in September and dragged the world’s biggest economies into recession. About $30 trillion was wiped from the value of global equities in 2008.

This year, companies have gone to the stock and bond markets for money as banks, seeking to preserve capital, become wary of lending. Some $5 billion of loans have been issued in Asia outside Japan this year, compared with $54.4 billion in the first quarter of 2008, data compiled by Bloomberg show.

Companies in the region have raised $15.9 billion through share sales in 2009, of which just $244 million came from IPOs, according to Bloomberg data. In the same period of 2008, firms raised $17.8 billion, with IPOs accounting for $5.1 billion.

Risk Aversion

STX Enpaco Co., an engine-parts unit of South Korea’s STX Group, and Australian Gemstone House Ltd. are among companies that canceled IPO plans in the past six months as skittish investors avoided new listings.

“IPOs are going to be very small and very few because risk aversion is still very high,” Kandiah said. “During the year, we are going to see extreme volatility.”

Real Gold Mining Ltd., a Chinese bullion producer, is the region’s biggest IPO so far this year according to Bloomberg data. Shares of the company, which raised $133 million, jumped as much as 14 percent on its debut in Hong Kong yesterday as gold’s price rallied above $1,000 an ounce for the first time in almost a year as investors sought safe haven amid plummeting stock prices.

Other sales have fared worse. Westminster Travel Ltd., a travel agency in Hong Kong, raised $6.6 million last month in a Singapore IPO and has plunged 50 percent from the offer price since trading started on Jan. 23.

‘Strong’ Companies Favored

Singapore’s DBS Group Holdings Ltd., Southeast Asia’s biggest bank, raised $2.8 billion last month by selling shares to existing investors at a 45 percent discount. The sale came after the lender posted its biggest profit drop in more than three years as fee income slipped and credit costs increased.

“What we are seeing is better capitalized companies, with strong balance sheets going back to shareholders in the form of rights issues and being given the capital,” Kandiah said.

DBS Group has a capital adequacy ratio of 10 percent, slightly above the average among the world’s 50 largest commercial banks by market value, according to Bloomberg data.

Other Asian banks including PT Bank Danamon Indonesia, the nation’s fifth-largest lender, and Shinhan Financial Group Co., owner of South Korea’s third-biggest bank, have announced plans this month to raise capital in rights offerings. Bank Danamon will raise $332 million, and Shinhan Financial plans to raise $1.1 billion.

In Australia, Westfield Group Ltd., the world’s biggest shopping-center owner by market value, is raising $1.8 billion by selling new shares to investors at a 13 percent discount in a bid to repay debt and strengthen its balance sheet.

Westfield has a debt-to-capital ratio of 36 percent, compared with the average 48 percent among the world’s 50 largest real estate investment trusts by market value, according to Bloomberg data.

To contact the reporter on this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net.