Investors are embracing Chinese technology companies as they tap the capital markets to fund their product offerings in the aftermath of a virus epidemic that has restricted human mobility and presented opportunities in digitization and remote work solutions.
This would give further impetus to the trend first triggered by the launch of China’s Nasdaq-style STAR market and Alibaba’s secondary listing in Hong Kong.
Wilson Chow, who heads PwC’s global technology, media/entertainment and telecommunications (TMT) industry practice, said that, in the wake of the coronavirus outbreak, the tech segments that will attract more attention of investors are digitalization, robotics and sensors applications and biometric and genetic screening.
Tech companies engaged in those sectors “would more actively tap into the capital market to raise funds as investors would give a warm welcome,” Chow said.
“Some private equity funds could also be attracted to make financial and strategic investments into companies engaged in these types of operations in order to achieve good capital return, or to leverage on the service offerings of these tech companies to enhance or transform their existing services/products,” he said.
PwC said the latter half of 2019 saw a significant pickup in the number of Chinese TMT IPOs. A total of 74 listings raised 155.3 billion yuan, a significant rise over the first half of the year when 30 listings raised 22.7 billion yuan.
“Since the outbreak, everything TMT-related has held up very well,” said Nitin Dialdas, CIO at Mandarin Capital. “If you are stuck and working from home you don’t have many options.”
But he added this short-term blip would fade as “humans are social animals, and cabin fever will force them to go out once again as soon as there are signs the virus is subsiding.” And while the trend of online retail will continue growing, the boom in online business of basic necessities will die.
So while equity capital markets (ECM) bankers are awaiting the pipeline to get busy again, other financing platforms are kept busy by companies with urgent needs.
“It’s this fear of the unknown which will keep issuers as well as investors away from the ECM market as companies do not necessarily need to come to market at lower valuations or more uncertainty,” said Marshall Nicholson, Nomura’s Head of ECM Asia ex-Japan.
“The more desperate companies may tap the commercial facilities of banks, take private placement equity or consider fixed income products. If indeed the coronavirus starts to retreat in the next couple of months, we could have a very strong Q4 for ECM as the uncertainly of supply chain disruption and consumers purchasing behavior will be known.”
Others are predicting a faster normalization.
“IPOs will pick up after the virus stabilizes and it will be back to business from April,” said Mandarin’s Dialdas.