In the news: Routes to going public

Initial public offerings in China and Indonesia hit the headlines, while other routes to going public are also in the limelight
by Bethan Rees

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Shanghai-based cloud services provider UCloud Technology has raised ¥1.94bn in an IPO on China’s STAR Market, “becoming the first company with a dual-class share structure to float shares” in mainland China, according to Eudora Wang reporting for DealStreetAsia. A dual-class share structure, such as that used by Facebook and Alibaba Group, has “unequal voting rights that enables the founder to retain control of the company after the IPO”, Wang writes.

UCloud Technology offered 58.5 million shares at ¥33.23, which boosted its market capitalisation to approximately ¥14.04bn on the STAR Market. “As one of Beijing’s attempts to stem an exodus of domestic technology firms listing overseas, the STAR Market opened for trading in July 2019 under a new IPO mechanism based on a Nasdaq-style registration system, rather than one that requires detailed regulatory approval for every listing,” Wang reports.

DealStreetAsia article

IPOs in Indonesia

Indonesia’s stock market has seen a boost in IPOs recently, accounting for six of the eight IPOs in the Southeast Asia area over the past month, according to Zhen Hao Toh for Bloomberg.

In 2019, the Indonesian government announced it would lower the corporate tax rate to 17% for companies going public, in order to boost listings. Ten out of 55 companies that went public in 2019 had “exceptional” returns at 500% since their IPO, Toh reports.

The size of businesses that are going public in Indonesia has been decreasing over the past ten years. “The shares on offer in such small IPOs are usually distributed to a group of cornerstone investors, meaning the shares may have low liquidity upon listing. That can make the stocks prone to huge price jumps, or, conversely, gut-wrenching price falls,” Toh writes.

One of the companies going public in Indonesia this year is the country’s biggest private carrier, Lion Air, which could raise US$1bn, Toh reports.

Bloomberg article 

IP-no?

Across the pond, it’s a different story, with companies using alternative routes to go public, according to Paul R La Monica reporting for CNN. Rather than IPOs, companies such as Spotify and Slack are selling shares on the New York Stock Exchange through a direct listing. According to La Monica, this allows companies to “bypass expensive underwriting fees for bankers and splashy roadshows to target potential investors”. Airbnb is also expected to direct list later this year.

There is another route that some companies are using to get their shares traded on public exchanges. A special purpose acquisition company (SPAC) is a company formed to raise investment capital through an IPO for the purpose of acquiring an existing company. La Monica says that SPACs are “often referred to as ‘blank check’ companies and are typically set up by [venture capitalists] or private equity firms”. Virgin Galactic went through the SPAC process and its shares are up more than 45% so far in 2020, validating the process and demonstrating that investors have an appetite for new companies, La Monica says.

La Monica references a report by PwC, which says the number of SPACs as a percentage of new offerings soared from 4% in 2013 to 30% in 2019. Jackie Kelley, the Americas IPO leader for EY, is quoted in the article. “There is a lot of energy in the new listing market. Everyone is asking about options. Do a direct listing? An IPO? SPACs are definitely a more viable option today.”

CNN article 

With other viable options to take a company public, will IPOs become a thing of the past? Leave your comments below.

Seen a blog, news story or discussion online that you think might interest CISI members? Email bethan.rees@wardour.co.uk.
Published: 24 Jan 2020
Categories:
  • Wealth Management
Tags:
  • dual-class share structure
  • Indonesia
  • SPAC
  • IPO
  • China

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