How COVID-19 is Reshaping the Corporate IPO in Asia
The article below is from our BRIEFINGS newsletter of 14 April 2020
The face to-face meetings between investors and executives, often requiring week-long tours of major cities across the globe, are emblematic of the IPO process. But such in-person presentations may soon be giving way to virtual IPO roadshows in a travel-restricted landscape. We spoke with Goldman Sachs’ Bill Chu, Sam Thong, James Wang and Darius Naraghi of the Investment Banking team in Hong Kong about the trends that are reshaping the IPO process in Asia.
Last month, you helped take China biotech firm InnoCare Pharma public during a time when much of the country was in lockdown. How did you manage that process?
Sam Thong: It was a time when everyone—clients, investors and ourselves—were adapting to a completely new situation. Given our prior work with the company, the management team was open to meeting prospective investors virtually, through phone calls and videoconferences. In a typical Hong Kong IPO roadshow, the management team would be traveling to the major cities in Asia, Europe and the US over the course of nine days to meet with potential investors. In the virtual format, we were able to schedule back-to-back meetings with investors, starting with Asia in the morning, moving to Europe mid-day and ending with East Coast investors at night. We used the time zones to our advantage. In doing so, we achieved a number of efficiencies. For example, we compressed the time of the road show itself from seven working days to 3.5 days. For us, that was critical because given the market volatility. We wanted to limit the number of trading days that we would have to be in the market.
How comfortable are companies and investors with the virtual format?
Bill Chu: In early February, there was a lot of uncertainty, and many investors and clients wanted to limit their travel. As a result, they were very comfortable with the new format. In fact, we have found that the level of engagement, client calls and activity has picked up. From my perspective, the efficiency gains means that we’re spending less time traveling and more time speaking with clients about market dynamics and their specific needs. For some of our clients, those conversations have focused on their liquidity needs, which has resulted in accelerated equity sales or increasing the size of their equity issuance. We’ve even kicked off some IPOs in the midst of the lockdown through video conferences.
How is the IPO process likely to change as a result of COVID-19?
James Wang: This might be the new norm for the new world. While the virtual IPO roadshow format worked well for InnoCare—which I would describe as a medium-sized transaction for Hong Kong IPOs—we have yet to see if a virtual format works for larger deals. Logistically, we set up multiple contingency plans—having backup phone systems in different rooms, for example—to ensure the investor meetings went as smoothly as possible. We considered every aspect of the deal structure to de-risk as much as possible, such as locking in cornerstone investors as early as possible.
How would you describe the broader outlook for deal activity in Asia at this time?
James Wang: If the market continues to be volatile, issuance volume is likely to be down compared with year-ago levels. However, since much of Asia has been in lockdown for longer than other parts of the world, we are seeing that companies are adjusting to the new normal and are returning to the markets. This is a type of market that is demand driven—that is, if issuers are flexible on price, they’re willing to push ahead with their plans to raise capital.
Darius Naraghi: Investors are in a similar situation to the rest of us. The interest from buyside investors hasn’t dried up just because they’re working from home. We spent a lot of time working with our colleagues across divisions, legal, compliance and engineering, to figure out how to conduct due diligence on transactions in a context where people are unable to travel. The level of trust between the banks and investors is more critical in the virtual world than in the physical world. You have to have trust in the banks and the management team, whom you may have never met.