(7 April 2020 – Hong Kong) Low valuations and the severe market slump have created a rare opportunity for Asian investment banks reeling from a dent in merger and acquisition (M&A) deal flow. Privatizations are picking up pace across retail, property and clean energy sectors.
Many corporates facing extended periods of revenue decline are planning to carry out restructuring in a private structure, coming ‘off the boards’ to avoid public scrutiny. Other companies are deciding to undertake privatization to unlock what they see as value not recognised by the market in their current form. Negatively impacted by the COVID-19 pandemic and pro-democracy protests, the Hang Seng Index fell 16 percent in the worst start to a year since 2001. The sell-off dragged the index below its book value in Q1 2020, a level seen only three times before. This infers traders are pricing firms’ assets at less than their stated worth, which makes it easier for majority owners to buy out other shareholders at heavily discounted prices.
Bankers confirmed the dynamic is driving an increase in take-private moves. Announced take-private and buyout offers for Hong Kong companies surged to US$7.3 billion this year.
“There will be more privatization offers in Hong Kong, particularly in sectors such as property and consumer retail. Some Hong Kong companies were not being valued at a level that they should be” said Morgan Stanley Investment Banking Chairman for Asia Pacific, Dieter Turowski. “That’s an important contributing factor and way more important today than a few months ago as valuations have become quite cheap” he added.