Record demand for initial public offerings in Asia is reducing the share of U.S. 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 Ltd. 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 Ltd. and Coal India Ltd. raised almost the same amount this month as all U.S. deals this year as the share of American IPOs dwindled to 11 percent.
Investors are paying 24 times next year’s profits, twice the average for U.S. 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 sixfold since 1999, when it accounted for 12 percent of sales. The amount raised by U.S. IPOs has declined 75 percent 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 Ltd. 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 U.S. has raised more than $700 million this year.
Companies from China and India account for six of the ten best-performing IPOs on U.S. exchanges this year, data compiled by Bloomberg show. Gurgaon, India-based MakeMyTrip Ltd., India’s largest online travel company, has surged 173 percent, while JinkoSolar Holding Co., the maker of silicon wafers in China’s Jiangxi province, gained 155 percent.
The Standard & Poor’s 500 Index and the MSCI Asia-Pacific Index have both advanced less than 7 percent this year. Asian companies that completed IPOs this year have climbed 36 percent on average, data compiled by Bloomberg show.
‘Needs and Wants’
“What the market needs and wants is a lot more IPOs coming out of China,” said Jeff Urbina, who oversees emerging-market 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, Disinvestment Secretary Sumit Bose said Oct. 19.
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.
QR National IPO
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 Nov. 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.
That’s more than double the valuation for companies in the S&P 500, which sell at an average of 12.3 times 2011 earnings. The MSCI Asia-Pacific Index of 982 companies is valued at 12.6 times estimated profit, data compiled by Bloomberg show.
Chinese and Indian IPOs are valued at more than 30 times next year’s estimated earnings on average.
Huatai Securities Co., the Nanjing, China-based brokerage that raised $2.3 billion in February, sold its shares at 32 times its estimated 2011 profit, data compiled by Bloomberg show. The stock has declined 9.2 percent since its listing.
“There’s a bubble building,” said Angus Tulloch, Edinburgh-based joint managing partner at First State Investments, which oversees $30 billion in the Asia-Pacific region. “The valuations are beginning to move up. It’s not all froth, but I think it’s in danger of getting that way.”
Asian companies that completed IPOs this year will post an average 31 percent gain in revenue in 2011, based on the 340 with analysts’ sales estimates compiled by Bloomberg.
SKS Microfinance Ltd., the Hyderabad, India-based lender backed by billionaire George Soros, may increase revenue 52 percent next year after raising $353 million in an initial sale in August, the data show.
That’s almost four times the average growth rate for the 30 companies in the Sensitive Index, the benchmark gauge for Indian equity, and about nine times faster than the average 6 percent increase for U.S. companies, data compiled by Bloomberg show.
Asian economies will expand 6.6 percent next year, according to the Washington-based International Monetary Fund. In the U.S., where at least 54 companies have postponed or withdrawn IPOs this year, economic growth will slow to 2.3 percent in 2011, IMF estimates show.
Benchmark interest rates near zero percent in the U.S. and Japan have increased demand for higher-yielding assets, leading more investors to Asian IPOs, according to Greg Lesko, who helps oversee $750 million at New York-based Deltec Asset Management.
Yields on 10-year U.S. Treasuries declined to 2.38 percent this month. The only other time in the past half century that yields have fallen as low was in the four months after New York-based Lehman Brothers Holdings Inc. filed for bankruptcy.
The average yield on U.S. investment grade debt slid to 3.55 percent this month, based on more than 4,000 bonds in Bank of America Merrill Lynch’s U.S. Corporate Master Index. That’s the lowest level since the data began in October 1986 and 27 percent less than the end of 2009. Yields on dollar-denominated bonds of emerging-market governments fell to a record 5.2 percent this month, JPMorgan Chase & Co.’s EMBI+ Index shows.
“Since yields are near zero in the Western world, there’s still a lot of money looking for growth opportunities,” Lesko said. “Growth in Asia has clearly been superior. The question is: will there be too much paper for the amount of demand? At the moment, that doesn’t seem to be the case.”