IPO Boutique Brief: ECM with a China-flavor

Equity Capital Markets has been asleep for about 15 months and it appears China-based companies may be the ones that get things going.

2022 ended with just a fraction of a typical year’s activity. Only 20 traditional IPOs from  bulge-bracket firms came to market and secondary/follow-on activity could only be described as sparse. With a year of interest rate hikes in the rear view mirror and a “rosier” forecast on the horizon in that aspect, expect increased activity on the IPO and Secondary front in the weeks and months to come.

This was the sentiment coming from Morgan Stanley’s James Gorman, the company’s CEO, this morning on his company’s earnings call (article via CNBC).

“I’m highly confident that when the Fed pauses, deal activity and underwriting activity will go up. I would bet the year on that, in fact,” Gorman said on an earnings call Tuesday.

Morgan Stanley’s revenues from investment banking were down 49% from 2021’s banner year.

It is our opinion that the IPO market will need to walk before it runs. We anticipate deals with a small, manageable size and those transactions to be largely accounted for prior to launch. That was the case in the year’s first IPO, Skyward Specialty Group Insurance (SKWD), which opened with a 26% pop at first trade versus issue price.

Looking ahead to what may get ECM out of its rut, there has been a couple of China based companies that have filed for IPOs that could be the initial spark to ignite increased activity. This morning, Xiaomi backed Hesai Technology Inc (HSAI), filed for an IPO. Hesai Technology is the global leader in three-dimensional light detection and ranging (LiDAR) solutions. This IPO filing comes after China based learning service provider QuantaSing Group (QSG) set terms on its IPO late Friday afternoon. QuantaSing Group will debut on January 20th. 

Not to be forgotten is the performance of China based hotel chain, Atour Lifestyle Holdings Limited (ATAT) which debuted +41% above issue and currently trades at +106% versus issue.

Active ECM investors have typically had a cautious attitude toward China based IPOs, however, that sentiment may change if it means that it sparks more activity.