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Business deals

Coronavirus set to ravage new deals across Asia

Dealmaking plunged in 2019, but 2020 could be worse

A screen broadcasts stock market news on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., March 11, 2020   © Reuters

SINGAPORE -- The coronavirus outbreak will likely have a severe impact on new stock market listings across Asia this year and hinder mergers and acquisitions, according to global consultancy Bain & Co.

With private Asia Pacific companies already losing $85 billion in value last year, a 31% fall compared to the previous five-years, Bain said the outbreak could extend the risk of a worldwide slump with deal activity off to a "very slow start" in 2020 across the board, but especially in China.

"When macro conditions are kind of uncertain, then that creates higher levels of caution when acquirers are getting these companies (looking to exit)," Bain & Co. Global Director Johanne Dessard told the Nikkei Asian Review, adding that the travel havoc by the outbreak was making it ever harder for investors to setup meetings.

"People may not be able to fly here and there, they may not be able to check things out, and also, we are seeing as well, basically a lot of things being postponed just because of the (travel) impediments," Dessard noted. Cracks in public listing plans have also surfaced.

The Asia Pacific region is a heavyweight in the global private equity arena with its markets topping out at a record $1.2 trillion in assets under management last year -- a quarter of the world's total.

Bain noted that growth across the region had been the result of sustained strength in deal values, with the Asia Pacific currently home to $388 billion in "dry powder", or about 2.8 years of future investments.

Property manager Central China New Life has already said that it is no longer sticking to its planned first-quarter $100 million listing in Hong Kong, and Shenzhen-based payment technology services company Yeahka's $250 million initial public offering is also in jeopardy.

Already reeling from the damanging effects of a protracted trade war with the U.S., the coronavirus outbreak will exacerbate an already grim outlook for deals in China.

Exit values dropped 30% to $44 billion last year, with the number of exits plunging 47% to 147, Bain's report said, with deals falling 16% in value to $63 billion, and the number of deals declining 19% to 488.

The report added that while Southeast Asia, Japan, South Korea and India also saw company exits tumble in 2019, investments drawn saw an uptick either in values -- and number of deals -- compared to China which saw declines across the board.

In terms of the absolute value and the number of IPOs last year, China still easily came out on top in Asia -- underscoring the massive share of private equity activity that the East Asian giant commanded in the region, despite the ecopnomic slowdown.

Southeast Asia saw exits last year drop 28% in value to $7 billion, with the number of deals falling by half to 15, compared to the previous five-year average.

"Part of it is definitely the same kind of dynamic as what we are seeing elsewhere -- macro conditions," Bain's Dessard said regarding Southeast Asia. "Vietnam, Malaysia and Philippines were fairly hot in terms of deal count and deal value, so that was a trend worth highlighting behind the overall numbers," she added.

Investors are still bullish about prospects in Southeast Asia, and continued investments in the form of acquisitions in the region are expected, Benjamin Ong, head of Mergers and Acquisitions and Capital Advisory at auditing firm KPMG in Singapore told Nikkei.

But he acknowledged that the coronavirus has brought a high level of uncertainty within global markets that has affected investor sentiment.

"Stock exchanges have also requested that listing hopefuls detail the impact of COVID-19 and their plans to mitigate the impact," Ong noted.

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