As Asia-Pacific ECM issuance has soared, the US investment bank has been at the forefront, working with many tech unicorns. 

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Alex Abagian (left) and Magnus Andersson of Morgan Stanley

The past 12 months have been busy for equity capital markets (ECM) everywhere, but nowhere more than in Asia-Pacific, where 2020 share issue volumes threatened to double year-on-year. If you exclude China A-shares (mainland issues in local currency), the Morgan Stanley team has led the regional ECM rankings every year since 2014.

Last year, in spite of health scares and volatility, non-A-share Asia-Pacific equity issuance, including convertibles and rights issues, rose by 82% to hit $290bn, according to Bloomberg.

Morgan Stanley topped the ECM investment banking rankings, with 129 deals worth $30.7bn, followed by Goldman Sachs (118; $29.1bn) and JPMorgan (87; $18.7bn). At the end of February, Morgan Stanley was leading 2021 year-to-date volumes.

A potential new world leader

Asia is now seriously challenging Europe in the creation of new equity. Regional ECM issuance volumes (ex-Japan and A-shares) overtook those from Europe, the Middle East and Africa last year, having lagged for most of the past decade, according to Dealogic. Asian initial public offerings (IPOs) also overtook those from Europe in 2020, although comparative regional IPO numbers have historically been more of a see-saw.

“Asia has more entrepreneurs, more disruptors, more new technology and healthcare companies, and more new economy businesses,” says Magnus Andersson, Morgan Stanley’s Hong Kong-based co-head of Asia-Pacific ECM. “Europe is now far behind. It has no technological giants. Yes, it has [privately-held start-ups valued at $1bn or more (unicorns)], but there are 140 technology unicorns in Asia-Pacific.”

Alex Abagian, who is also co-head of Asia-Pacific ECM, as well as head of Asia-Pacific equity syndicate, notes that the upward trend has been centred on China, which still accounts for 50–60% of regional issuance, depending on how it is categorised. China is followed by Japan, with 15–20%.

“But India and Australia have also been contributing to the increase,” Mr Abagian says. He adds that Morgan Stanley’s consistent leadership in regional ECM is not confined to volumes but, most years, includes numbers of deals.

“We have taken the view that no deal is too small,” he explains. “A business may be small at the time of its IPO, but there could be a $1bn follow-on down the road.”

As well as providing deal flow, this attitude helps to maintain the trust of investors, providing leverage in price range negotiations, Mr Abagian maintains. “It’s a virtuous circle for us,” he adds.

A base in Hong Kong

While investors have traditionally been pigeonholed as US, European or Asian, Mr Abagian now thinks more in terms of “global” investors. “For the past three years, any global institution has had offices in Hong Kong, with decision-making taking place in Asia,” he says. “As volumes have grown in Asia, managers have shifted more capital here.”

There are more homegrown funds, particularly hedge funds, with spin-offs from the bigger global investor brands and pure China-dedicated funds out of mainland China. “We have a lot more variety than the typical US or European deal, which is 100% reliant on the top long-only investors,” Mr Abagian says.

Reasons for listing tend to differ in Europe and Asia, and this is reflected in levels of primary issuance. “In Europe, where IPOs are more of an exit mechanism for private equity, they often have a significant secondary component,” Mr Andersson observes. “If there is a primary element, it’s because the owners need to deliver.”

We have taken the view that no deal is too small. A business may be small at the time of its IPO, but there could be a $1bn follow-on down the road.

Alex Abagian, Morgan Stanley

In Asia, where the purpose of the IPO is typically to finance growth, there is a much higher primary component. “There is a big difference,” Mr Andersson says.

While Hong Kong has had social and hospitality restrictions, it has not gone into lockdown. However, institutions like Morgan Stanley have applied more stringent policies and many of their employees have been working from home. Regional travel and quarantine restraints have had the most impact, particularly on the marketing of IPOs.

Following the Covid-19 outbreak, the first Hong Kong IPO of any size — and the first Asian listing to be marketed virtually — was the Chinese biopharma business InnoCare. With Morgan Stanley as lead left sponsor and global coordinator, the transaction priced in March 2020 at the top end of the range. The deal raised $332m, valuing the business at $1.48bn — 31% higher than in the pre-IPO funding round.

A strong presence in China

Over the past few years, a change in Hong Kong exchange rules has successfully drawn Chinese biopharma listings away from Nasdaq (where they are penalised with a China discount). Today it has the added attraction of enabling them to raise more money than in the US market.

“Hong Kong started relatively small, but it has now gone beyond biotech specialist funds, and biopharma IPOs can raise materially more capital here,” Mr Abagian says. “In 2019 and early 2020, it was typically $100m to $200m. Now it’s $300m plus.”

Morgan Stanley has been well represented in China healthcare equity transactions and, during 2020, was able to claim a more-than-70% share of that market. In April 2020, for example, it was sponsor and global coordinator on biopharma business Akeso’s IPO, which raised $330m and valued the company at $1.6bn.

By November, Morgan Stanley was able to help Chinese biopharma firm RemeGen raise $515m in its IPO, which valued the business at $3.2bn.

As elsewhere, e-commerce, internet content and data businesses have been popular sectors for new Asian listings. One milestone was the Hong Kong debut in February this year of TikTok rival Kuaishou, a Chinese video-sharing mobile application provider. Raising $6.2bn and valuing the company at $61.7bn, this was the largest-ever Hong Kong tech IPO and the fourth largest internet tech IPO globally. It also achieved Hong Kong’s largest-ever retail demand.

Morgan Stanley was sponsor, global coordinator, stabilisation and settlement agent. “Kuaishou represented the culmination of the global appetite for internet content out of China, with the sheer size of its total addressable market,” Mr Abagian says. The shares almost tripled in price on the first day of trading.

Another recent theme has been large Chinese property companies listing their property management arms. One, Shimao Services, was valued at $5bn in October 2020, raising $1.3bn in an IPO. The following month saw Sunac Services come to market, valued at $4.5bn and raising $1bn. Morgan Stanley acted on both deals.

Given that China has avoided recession and Covid-19 has all but disappeared in the region, the market has also welcomed some old economy flotations. One was bottled water business Nongfu Spring, which listed in August 2020 with a market cap of $32bn, and the highest pricing multiple of any Hong Kong consumer IPO since 2007.

“There is not much growth in the consumer sector globally, and Nongfu Spring provided defensiveness and growth in the same package,” Mr Andersson says.

The bank has also been busy with follow-ons. One highlight was GSK’s $4.3bn sell-down last year of Hindustan Unilever stock, in the largest block trade in Indian capital markets history. Morgan Stanley was a joint bookrunner on the accelerated book build.

Also notable was a series of follow-on deals for WuXi Biologics, a drug development technology platform provider. Morgan Stanley has helped the company raise more than $10bn in the past 12 months, in 12 separate transactions. The bank was sole bookrunner on 11 of them.

At the end of 2020, it also priced a $3bn primary follow-on for NIO, a Chinese electric car producer. It was the third follow-on of the year led by Morgan Stanley for this client, raising $7.1bn in total.

That kind of repeat business is a positive calling card for the bank. Mr Abagian says that part of the capital markets team’s secret sauce is its longevity — senior members have been with Morgan Stanley for an average 15–20 years.

All are hoping that their success rate will continue. “We have a larger IPO pipeline than ever, working on more than 50 across the region,” Mr Andersson says, adding that working remotely allows more meetings than having to be there in person. “If markets hold up, we expect a very active few quarters.”

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