Asia bankers bracing themselves for deal drought

A man having his temperature taken at the Bank of China Tower in Shanghai on Monday. Bankers say preparations for potential Chinese initial public offerings are slowing, as efforts to limit the spread of the coronavirus have put key meetings on hold.
A man having his temperature taken at the Bank of China Tower in Shanghai on Monday. Bankers say preparations for potential Chinese initial public offerings are slowing, as efforts to limit the spread of the coronavirus have put key meetings on hold. PHOTO: BLOOMBERG

HONG KONG • Bankers in Asia are bracing themselves for a deal drought as efforts to limit the spread of the coronavirus epidemic have put key meetings and roadshows on hold.

Several auctions of assets are facing delays or reassessments and preparations for potential Chinese initial public offerings (IPOs) are also slowing, bankers said.

"All our deals are on hold now - capital markets or M&A (mergers and acquisitions). Nothing is happening," said a Hong Kong-based senior investment banker with a Wall Street bank.

Baring Private Equity Asia is expected to extend a bidding deadline for the sale of HCP, a Shanghai-based packaging business valued at around US$1 billion (S$1.39 billion), said four sources.

The Hong Kong-based investment firm sent out teasers before Chinese New Year and was initially expecting bids to come in as soon as this month, they said.

Baring declined to comment and HCP did not respond to a query for comment.

The launch of a sale process of Eu Yan Sang International, a Singapore healthcare company specialising in Chinese medicine, is likely to be postponed, said two people aware of the matter. They said the company had hoped to value itself at more than US$500 million.

The sale of the company, partly owned by a unit of Singapore state investor Temasek and with a significant chunk of its business in Hong Kong, is being pushed back as most of its targeted buyers are Chinese, the two sources said.

Responding to a Reuters query, Eu Yan Sang's Group chief executive Aaron Boey said in a statement late on Tuesday that the company did not comment on rumours, adding it was focused on "executing our strategies and enhancing shareholder value" during these extremely challenging times.

Temasek declined comment.

"Any China-related deals are off, so that means Q1 is probably washed out. European and US buyers are also worried about travelling to Asia," said a Singapore-based banker. Major banks in Hong Kong and Singapore have restricted travel to mainland China and are allowing staff to work from home while moving others to different office locations.

A number of countries have reduced or cancelled flights in and out of China while Singapore and Hong Kong have demanded people returning from China quarantine themselves for up to 14 days.

GLOOMY OUTLOOK

Any China-related deals are off, so that means Q1 is probably washed out. European and US buyers are also worried about travelling to Asia.

A SINGAPORE-BASED BANKER

The virus has claimed more than 1,000 lives and has spread to 24 other countries and territories.

The bankers declined to be identified because the transactions are confidential.

LESSONS FROM SARS

During the 2003 severe acute respiratory syndrome (Sars) epidemic, the volume of China-related IPOs fell 25 per cent in the first half of the year compared with 2002, while M&A volumes halved, according to Refinitiv data. The epidemic ended in July 2003.

China has become a far bigger factor for both markets since then, accounting for 55 per cent of M&A and 66 per cent of IPO activity in Asia-Pacific over the past four years, compared with an average 16 per cent and 50 per cent in 2003.

Another factor that will concern investors in IPOs is the potential for a company's outlook to worsen because of the epidemic, bankers and lawyers said.

"The most significant adverse impacts, as of today, are the ability of IPO candidates and the reporting accountants to get their financials prepared and audited and for advisers to conduct on-site due diligence, given the disruption to regional travel," said Mr Michael Jacobs, a partner at law firm Allen & Overy.

Buyout firm Carlyle Group has delayed the United States IPO of its German speciality chemicals group Atotech, concerned that the coronavirus outbreak would hurt its valuation, Reuters reported last week.

While video conferencing is making it easier to hold meetings than during the Sars outbreak, dealmakers expect the drought to last for weeks to come.

"Over the next few weeks, nothing much is expected to come to the markets in this environment - on both the M&A and IPO side. I'm trying to focus on other deals where there's hardly any China involvement," said a banker based in Hong Kong.

REUTERS

A version of this article appeared in the print edition of The Straits Times on February 13, 2020, with the headline 'Asia bankers bracing themselves for deal drought'. Print Edition | Subscribe