Corporate Financing Analysis - Asian Tech IPOs A Regional Success Story - 24 APR 2017


Asia's taste for tech is maturing, as evidenced by recent activity across the continent's equity capital markets (ecm) so far this year. Against the backdrop of a broader decline in ecm and IPO activity across the region in 2017 to-date ( Dealogic data show that the former is down by 75% and the latter by 77% y-o-y), owing largely to capital market activity thawing out in other parts of the globe, the high technology industry has remained something of a stalwart in the arena for new listings. Thanks to this heightened level of interest in the sector among investors, tech remains the most valuable industry for IPOs (despite recording a y-o-y slump of its own) and the best performing in the aftermarket in the y-t-d period. According to Dealogic data, tech floats in Asia worth a combined USD1,238mn have been completed across 14 IPO deals so far this year - equivalent to a 11.3% share of the broader market (even after a 68% drop in aggregate deal value from the equivalent period in 2017). Broader ecm activity in the region, meanwhile, has tallied USD65,009mn in the y-t-d period, compared with USD259,154mn recorded by the same stage last year.

High Growth
Asia IPO Aftermarket Performance, 2017 y-t-d
Source: Dealogic , BMI

We highlight a strengthening focus on innovation, which has in turn fuelled the growth of the local venture capital (VC) industry, and regional powerhouse China's push to diversify its economy, which has seen it position itself as a potential hub for the industry in Asia.

Innovation In Vogue

The sub-sectors of the internet, tech, media, and telecommunications all fall under the banner of innovation industries and, given the growth potential of such industries in Asia and in emerging markets (EM) more broadly, we believe that it provides a solid backdrop for investment activity (be it in the ecm arena, or otherwise). As data from research house Preqin show, Asia-focused VC fundraising has been steadily increasing in recent years, tallying more than USD43bn since the start of 2014. Additionally, with as many as 200 VC funds currently in the market and hoping to raise as much as USD50bn, the industry's total funds raised could double within the space of just twelve months. The early signs of doing so are good too, with funds in the market having already secured more than half that via interim closes ( see ' Asian VC Industry Growth Story On Track ' , April 5 2017). Whatever happens, 2017 is almost certain to close as a record year for fundraising for the VC industry in the region. Broadly speaking, the numbers suggest that the market's long-term ascendency remains on track, even if it is likely that the VC industry's development will encounter further challenges along the way as it continues to develop. This, of course, is all good news for the local IPO market, as VC investment in start-ups will see a higher volume of deals come to market supported by prior investment from funds. In addition, the VC-fuelled growth of the local tech industry more broadly will likely catch the eye of investors and help provide firms from the sector with a clearer route to going public as a result.

China In The Engine Room

According to the China Securities Regulatory Commission (CSRC), the regulator has received and is currently processing a whopping 644 IPO applications. As of the end of Q117, 40 of those applications have been given the green light to go public too, while the remainder still have a number of hoops to jump through before they can enjoy the same success. As the numbers suggest, China is very much at the centre of activity in Asia's IPO arena and is fuelling the market for tech floats too ( see ' Imperative For Tech Dealmakers To keep Ahead ' , February 15 2017 ). Thanks to a push from Beijing, the promotion of China's tech industry has benefited from China's gradual rebalancing of its development model (and its economy) from one that that has long been dependent on the industrial sector to one that will be increasingly dominated by the tertiary industries, which includes tech. In terms of policy, China's most recent - its 12th thus far - five-year plan has pinpointed the expansion of consumption and the improvement of industrial competitiveness as the most important priorities to drive economic growth higher. The key driver behind all this is a quest for sustainability and Beijing is hoping that an increase its research and development spending, which is projected to increase to 2.5% of GDP from 2016 through to 2020, from 2.1% in 2015, will play an instrumental role in helping it move towards its goal. In sum, China's charge in tech is good news for the sector's growth across the region and for the regional IPO arena too.