IPO Analytics: Corporate Governance - Alpha Generator, Shortlist of Bookrunners to Avoid/Keep Happy

Since inception of our IPO research in 2015, the Aequitas Research team has covered over 361 IPOs, which raised over US$100m each, across Asia Pacific (excluding Korea and China A-shares) and the US (Asia linked listings).

For this insight, we used data from our IPO framework, the prospectus, company filings and market data to analyse 244 IPOs across Developed and Emerging Asia Pacific (excluding Korea and China A-shares) that took place over 2016-18. Our results are split across two insights.

In our previous insight, IPO Analytics: Cut your losses and let you profits runs, holds true for IPOs, we highlighted:

• Overall IPOs have provided an average 4.8% return at the end of the first week, some geographies like India and Thailand have clearly outperformed with average returns of over 10%.
• IPOs in Hong Kong despite topping the list with the most number of deals provided only 2.4% average returns.
• In terms of sectors, Financials and Real Estate sector have been the biggest capital guzzlers in the region. While Healthcare has been a consistent underperformer across geographies over the first few months of listing.
• Incremental returns are higher from holding on to winners than from trying to bet on losers turning around, both in terms of the percentage of such cases and in terms of the average returns overall.

This is the second and final part of our twin series of insights covering our findings. In this insight, we’ll analyse the best and worst bookrunners by country, corporate governance impact on listing performance, earnings and liquidity analysis. Our key findings include:

• Some of the biggest names in Investment Banking, one American bank in particular, has by far the lousiest record of providing investor returns from IPOs in this region
• IPOs without any corporate governance issues outperformed the ones with a few issues by 9% on the first day and over the first month. Deals with related party issues and cash/dividend payout prior to listing performed the worst on average.
• Sales estimates at the time of IPO appear to be a lot more reliable than the net income estimates. The latter has a bias towards being revised downwards much more so than the sales estimates. Target price changes seem to mirror share price movements and were largely out of sync with earnings revisions
• In terms of volume traded as percentage of shares offered, deals that did well on an average trade 2.5x more than deals that were under water. India had the highest proportion of shares being flipped owing to the high allocation to retail and HNIs while Australia had the lowest liquidity.

This report has been prepared by the entire Aequitas Research Team: Ke Yan, CFA, FRM, Zhen Zhou, Toh and Sumeet Singh.