War-Stoked Volatility Brings New Challenge to IPO Plans in Asia

(Bloomberg) -- A tough start to the year for initial public offerings across Asia Pacific is getting worse as geopolitical woes emanating from Europe are adding to existing regional headwinds.

The amount raised by IPOs in Asia during February was the least for any month since May 2020, at $5.1 billion. Excluding deals in mainland China, which tend to be more resilient to volatility abroad, the tally was just $1.9 billion.

Bankers and companies seeking funds, particularly in Hong Kong, have been struggling with fallout from crackdowns by Beijing targeting an array of industries since June. New rules and regulations for the technology, education and even home-delivery sectors have traumatized investors and impacted share-sale plans of large Chinese firms.

Russia's invasion of Ukraine has added to those concerns, sparking a surge in volatility across asset classes that's triggering delays in funding deals from global bonds to loans and IPOs. The spillover has reached some Asian corners that had been active in the past months.

“There could be more IPO plans shelved till the Ukraine situation settles down,” said Brian Freitas, an Auckland-based analyst for independent research platform Smartkarma. “The outlook for March is not great. Valuation mismatches between issuers and investors were already causing issues leading to some IPOs being postponed.”

The biggest deal in the spotlight is Life Insurance Corp. of India's $8.7 billion IPO, set to establish a domestic record in Mumbai this month. The sale of a stake in the state-insurer is part of Prime Minister Narendra Modi's efforts to mop up cash and help rein in a gaping budget deficit for the fiscal year through March. The company's chairman said last week that plans remain on course.

“If the LIC IPO is delayed, that throws the entire budget off,” Freitas said.

In South Korea, which hosted LG Energy Solution's $10.8 billion offering in January, only $284 million in IPO proceeds were raised last month, a 64% drop versus the same month last year. Even before the rise in risk-off sentiment due to Russia's invasion of Ukraine, a construction unit of Hyundai Motor Group scrapped plans to raise as much as 1.2 trillion won ($1 billion) in Seoul.

In Japan, SBI Sumishin Net Bank Ltd. is expected to go ahead with an offering of over $1 billion, potentially the country's largest IPO since SoftBank Corp.'s $21 billion deal in 2018. Shares of the online bank are expected to start trading on March 24.

It is “worth a look for investors willing to brave the weak IPO market conditions,” Arun George, an analyst at Global Equity Research Ltd., wrote in a report.

Deals in Southeast Asia are also facing uncertainty. Jakarta-based tech giant GoTo Group started gauging demand for a Indonesia listing of about $1 billion, IFR reported last month. Malaysian diary producer Farm Fresh Bhd. and shareholders are seeking 1 billion ringgit ($238 million) in what would be biggest Kuala Lumpur listing since June, with the debut expected March 22.

“There is definitely a risk of a spillover the longer the war drags,” said Clarence Chu, an analyst at Aequitas Research. “Higher market uncertainty would be less conducive on both ends, for issuers and buyers. Issuers could see their pricing and deal sizes impacted by the crisis.”