Dim hopes for firms seeking to go public

Private-equity companies will find it tough recouping their investment through initial share offerings amid the market slump

PUBLISHED : Friday, 11 January, 2013, 12:00am
UPDATED : Friday, 11 January, 2013, 3:56am

Asian private-equity firms expect listing candidates to struggle to complete their initial public offerings for another year, limiting their ability to cash out of their investments, according to a survey by Ernst & Young and Mergermarket.

Investment in management buyouts is likely to grow significantly because the mutual agreement in such deals offers a viable exit path for investors, the survey found.

Speaking at an industry forum yesterday, Michael Buxton, a partner at Ernst & Young's Hong Kong office, said he believed the exit opportunities in Asia through an initial public offering would be very limited this year, particularly in mainland China and India.

Buxton said investors had yet to find a way to cash out of their investments and pocket profits as the private-equity market in Asia had been overly reliant on initial public offerings.

Exit opportunities were equally restricted in Asia last year. Investors only raised US$17 billion in 113 deals, compared with US$45 billion in 125 deals in 2011, according to data compiled by Mergermarket.

Lucian Wu, the managing director of Paul Capital, which has US$7 billion in assets under management, said the backlog of companies waiting to list on the mainland and Hong Kong markets had made it tougher for private-equity firms seeking to exit.

The mainland's securities regulator has asked underwriters and auditors to review financial statements of listing applicants in a bid to restore investor confidence in the market, which has been tarnished by insider trading and other forms of manipulation.

Despite the latest efforts by the government, Wu said the exit route on the mainland through an initial share sale was not looking encouraging at the moment.

More than 800 companies have filed listing applications with the regulator, highlighting an unusually long waiting line, according to information obtained from the China Securities Regulatory Commission.

Few expect the mainland's capital market to perk up and witness a resurgence in public offerings in the coming year as concerns over the quality of companies and poor transparency in the listing mechanism persist.

Timothy Gardner, a Hong Kong-based partner at law firm Latham & Watkins, said he expected only well-known companies to be able to generate any investor interest.

More mainland listing candidates would prefer to go public domestically after a series of accounting scandals in the US has cooled interest for Chinese companies abroad, Gardner said.

Because of the poor listing outlook, many companies are shifting their focus to management buyouts - which involve the existing managements buying up the businesses - with the help of private-equity funding as it is easy for investors to cash out of these transactions.