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Opinion

The Asian brake behind Lyft's juddering start

Abrupt end to region's IPO boom casts a shadow over financial markets

Lyft's shaky stock market debut disappointed Silicon Valley, Wall Street and Tokyo.   © Reuters

Recent days have provided more than their fair share of dark economic news. From Japan's latest survey of big manufacturers to industrial output in Germany and U.S. services activity, the global downshift is accelerating.

But perhaps the most potent indicator was ride-sharing company Lyft's shaky $24 billion stock market debut, which has worrisome implications globally, including for Asia. The Uber challenger was locked into reverse gear on its first two trading days in New York -- and has been juddering backward and forwards ever since.

Lyft's stop-go-stop performance in post-IPO trade augurs poorly for Uber's coming market debut. And it will hurt confidence in other equity fundraising plans around the world, not least in Asia.

There is even a direct personal link to the region -- Lyft's biggest shareholder is Hiroshi Mikitani of Rakuten, with a 13% stake. By coincidence, fellow Japanese billionaire Masayoshi Son of SoftBank, plays a similar lead role at Uber, where he holds 15%.

In truth, positive sentiment in Asian markets was already evaporating even before Lyft disappointed Silicon Valley, Wall Street and Tokyo.

The region's IPO market was red-hot in 2018. U.S. President Donald Trump's trade war, with its impact on the global economy, did not stop companies raising about $262 billion in equity and equity-linked instruments, including more than $99 billion in IPOs, according to PwC.

In Tokyo, Son's SoftBank floated SoftBank Corp., its mobile phone arm, and raising $23.6 billion. Meanwhile, Chinese smartphone sensation Xiaomi sold shares worth $5.5 billion in Hong Kong. Singapore completed 13 IPOs, Vietnam did five. Hong Kong led the world in listings, with 125 IPOs totally more than $36 billion, driven by the tech sector.

But a few months have made all the difference. Asia's IPO scene saw its weakest start to a year since 2016. Equity sales, from IPOs and convertible bonds to follow-on deals, plunged 41% to $49 billion between January and March, according to research agency Refinitiv. Bankers' fees from Asian equity capital market deals in the first quarter were the worst in six years.

Asia's investment community is quite rightly lowering its sights. The focus now is on the rather unsexy business of companies that might need additional capital. The inference is clear: 2019 will not be about splashy Asian IPOs, but the more low-key work of follow-on capital raisings. In other words, financial maintenance.

Among the companies that IPO-ed in 2018 and have come back to market: Chinese electric vehicle maker NIO (raising $750 million in convertible bonds in January), video streaming company iQiyi ($1.1 billion in convertible debt in early April) and e-commerce star Pinduoduo (a $1.6 billion follow-on equity offer in February).

Asia's IPO downshift may be a leading economic indicator for what awaits the U.S. Thanks to the Brexit mess and slowing growth, Europe also is seeing a slow start to 2019. The U.S., though, is expecting a big wave of Silicon "unicorn" IPOs -- including Uber, Airbnb, and mobile app Pinterest.

Trump's oft-stated boast about the "strongest economy in the history of our nation" glosses over the intensifying headwinds his policies are generating around the globe, including in Asia.

The Bank of Japan's quarterly "Tankan" survey showed sentiment among the biggest manufactures plunged the most in six years -- to 12 in March from 19 in December. A Reuters poll of economists sees the index falling another four points three months from now.

Last week, the International Monetary Fund warned that now is a "delicate moment " in the world economy. It expects a slowdown which demands a smart response. "Handle with care," says IMF Managing Director Christine Lagarde. "We must not only avoid policy missteps, but also be sure to take the right policy steps."

Missteps aplenty are happening in Trump's Washington. Not only has the administration already done plenty of damage with its tariffs on Chinese goods worth $250 billion and trade war with Beijing. But talk of 25% taxes on car imports, attacks on the U.S. Federal Reserve and threats to close America's southern border, are all making a bad situation worse.

Moreover, his assault on China is hitting not only the Middle Kingdom but also other Asian economies by upending supply chains.

The trade war complicates China's ability to grow 6% this year. Its overseas shipments plunged a full 20.7% in February from a year earlier.

Admittedly, economic trends don't move in straight lines. Last week brought news that Chinese manufacturing returned to growth for the first time in four months. The Caixin/Markit Manufacturing Purchasing Managers' Index rose to 50.8 in March from 49.9 in February, above the 50-mark delineating expansion.

Investors in Shanghai seem more enamored with domestic stimulus efforts than they fear external risks. The city's benchmark index is up 6% over the last year. But there could be dose of wishful thinking in mainland indicators which measure sentiment rather than economic reality. The dark clouds around Lyft are hard to ignore.

Here, Carl Icahn's moves may look prescient when the history of the IPO is written. The fabled American investor reportedly exited his roughly 2.7% Lyft stake before its listing on New York's Nasdaq. His $150 million investment in Lyft in 2015, when the company was valued at $2.5 billion, presumably mushroomed and would have been worth about $500 million if he held it.

Icahn, it seems, feared the company's roller-coaster ride to come. Famed financier George Soros reportedly bought the shares, according to Wall Street Journal. Only time will tell which billionaire made the better call.

Primary market sentiment in Asia suggests caution ahead. Choppy markets and economic uncertainty have issuers throttling back. Asia's biggest IPO so far this year was just $687 million, by India's Embassy Office Parks REIT. This year's planned major Hong Kong IPOs are non-Chinese companies. They include perhaps, brewer Anheuser-Busch InBev's proposed sale of a stake in its Asian interests, which could be worth $5 billion and give the new issue market a big boost.

But even if the beer deal materializes, it is all a far cry from the heady days of 2018, when Hong Kong saw the most IPOs in eight years.

This does not mean Uber's upcoming debut will flop for Son. His huge bet on ride-sharing, that also includes Singapore-based Grab, may indeed reap bigger spoils than Mikitani's payday. Rakuten said it will book a roughly $990 million gain on the Lyft IPO in the quarter through March.

But investors, not least in Asia, are turning cautious.

William Pesek is an award-winning Tokyo-based journalist and author of "Japanization: What the World Can Learn from Japan's Lost Decades." He was given the 2018 prize for excellence in opinion writing by the Society of Publishers in Asia for his Nikkei Asian Review work.

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