In the weeks since the world got to first hear about the coronavirus outbreak in China, business activity in and around the country has been greatly affected, with initial public offerings being no different.
Capital market activity in Hong Kong started with a bang – in January, 22 companies raised HK$8.5 billion ($1.1 billion) through IPOs, up 102 percent from the same month in 2019 – but by February, the flow of new listings had all but dried up, according to a report in the South China Morning Post.
In mainland China, 48 companies had priced listings as of Feb. 11, with $10 billion of funds raised, according to Dealogic, the numbers being up more than double and 300 percent compared to the same period last year, respectively. However, the bulk of those listings happened in the three weeks leading to the Lunar New Year holiday, when China felt the full impact of the coronavirus. Since then, the number of weekly listings was down to single digits.
With travel being banned outright – if not heavily discouraged – IPO schedules have been disrupted as key players in the process are unable to perform their duties: Bankers cannot meet face-to-face for negotiations, sponsors are unable to conduct due diligence, and accountants have no way of carrying out site inspections and audits.
Gilbert Li, a corporate partner at Linklaters adds that the travel bans are also impacting investor meetings, especially if the management of the listing applicants are based in China which will probably result in delay in at least some deal timetables.
To make it more difficult for IPO hopefuls, regulators like Hong Kong’s want them to spell out the potential effect of the coronavirus on their business.
“Hong Kong regulators are focusing on the impact of the outbreak on the business operation of the listing applicants,” says Li. “Listing applicants and their sponsors are conducting additional due diligence and analysis to critically assess the impact such that appropriate disclosure can be made in the prospectus.”
Li says that in the present scenario, he advises client to understand that it is the legal obligation of a listing applicant to ensure that its prospectus contains sufficient information to enable potential investors to make an informed assessment of the listing applicant and its business.
Despite the temporary slowdown, Li is hopeful that several companies will still push with their planned listings as scheduled. “Most listing applicants don’t make listing venue decisions based on timetable alone. There are much more important factors such as valuation, investor base and regulatory framework,” he says.
And there are promising signs. Chinese artificial intelligence company Megvii Technology is reportedly planning to resubmit its application for a $500 million Hong Kong initial public offering (IPO), after its original application lapsed earlier because of coronavirus delays. “We expect a delay in at least some deal timetables, but we are relatively optimistic in the medium to long term. These things tend to bounce back pretty quickly once the situation is under control,” Li says.
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