Asian Firms Look Beyond Stock Sales to Raise Funds

Simon Eckersley, CEO and Co-founder of HAO Capital, talks to CNBC about seeing Chinese companies increasingly turning to private equity for capital when IPO markets are sluggish.

A drought in the IPO market has more Asian firms looking into alternative ways to raise capital, with many tapping private equity and debt markets.

Global investment firm Piper Jaffray says there’s been a 25 percent increase in demand for both private equity and bank loans from regional clients in past two months, as turmoil ripped through global stock markets.

“Some companies that do need the capital… are clearly trying to get more comfortable with gearing some more bank debt; and, when necessary, if they still need more capital, they will turn towards the private equity and venture capital community,” said Hong Kong-based J. West Riggs, who is Managing Director and Head of Asia Equity Capital Markets at the firm.

Asia’s struggling IPO market has resulted in only 25 listings in the first six months of this year on the main board of the Hong Kong Stock Exchange, compared to 42 deals for the same period in 2011. Only six of this year’s listings were greater than $100 million, pointing shaky investor interest in what has been considered the world’s biggest market for IPOs in two of the past three years.

As a result, China-focused private equity firm HAO Capital is seeing more companies that haven’t been able to raise funds in the stock market this year.

“We are coming across more companies that have tried to go public and raise capital in the public markets and haven’t been successful like a delayed IPO or they filed in the U.S. and it didn’t happen and now they are looking at a private round of financing,” said CEO and Co-Founder Simon Eckersley.

While there are more opportunities for private equity investors, Eckersley notes that the current market conditions have made it difficult to exit from the investments.

For Singapore-based UOB Venture Management, the investment horizon for their private equity funds is now longer as listings get delayed.

“Investee companies need funding for a longer period of time, before they eventually do an IPO,” the firm said.

“Overseas exits are particularly difficult at the moment,” Eckersley said. “I think the China market is still open for business, but IPOs outside China are more difficult at the moment.”

Chang Tou Chen, Managing Director and Head of Global Banking of South East Asia at HSBC, adds that while private equity firms are becoming more relevant in Asia, the control factor over companies still limits their reach in the region.

“Many companies in Asia are either state owned or family owned, and families don’t like to lose control of companies to private equity,” Chang said.

“If it [IPOs] doesn’t pick up then the private equity alternative will continue to increase in demand and then the other alternative will be mergers and acquisitions,” Riggs said. “So there will be some companies that may be forced to look for strategic buyers.”

Posted in HAO Capital News.