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(HONG KONG) Despite a wave of equity offerings in Asia, the market is preparing for more, according to bankers and analysts, with companies seen lining up to boost capital while the window is open.
While that sentiment may sound like wishful thinking from fee-starved underwriters, ample evidence exists suggesting the equity well in Asia has yet to run dry.
More offerings are expected in places like South Korea, Hong Kong and Japan, and not just from the banking industry.
'The action in Asia has been largely post-Q4, so there is still a lot of supply to come and a long way for it to go,' said Viswas Raghavan, managing director and head of international capital markets for JPMorgan.
For now, much of the capital-raising focus remains on banks. South Korea's Hana Bank, Singapore's United Overseas Bank and Hong Kong's Bank of East Asia are frequently mentioned as potential candidates to raise more cash.
Airlines, manufacturers and real estate firms may also seek to raise money, according to Mr Raghavan.
The vehicle of choice remains rights offerings, where companies tap existing shareholders by offering discounted shares. With Asian markets holding up, companies have seized on the chance to strengthen balance sheets by boosting capital.
One factor driving the trend is that as corporate credit quality falls, borrowing costs rise, so raising debt gets more expensive. For some, issuing equity is the cheapest option.
Another factor is that Asian companies, so far, have shown that while balance sheets may need strengthening, they don't need full-scale repairs. That's more comforting to investors.
'The only risk to that is supply not being met in terms of demand if markets bail on us,' Mr Raghavan said. 'In which case, the shutters will come down. It becomes a sentiment thing, and fundamentally, liquidity can dry up.' JPMorgan has been involved in more than ten announced rights offerings in Asia, including plans for Malayan Banking to raise US$1.62 billion.
As of mid-March this year, Asia-Pacific and Japan equity activity was down from a year ago, but volumes were the best in the world.
Across the region, US$15.7 billion of equity was raised from 109 deals. Companies in the Americas raised US$14 billion from 88 issues, while Europe, the Middle East and Africa saw US$3.6 billion raised from 48 issues, according to Thomson Reuters data.
In the same period, Asian debt volumes reached US$10.5 billion from 10 deals, up 55.4 per cent from last year.
Rights issues thus far have mainly supported top industry players. Whether lower-tier, smaller companies will receive as warm a welcome in a slowing economy remains to be seen. - Reuters
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