A view from Emerging Asia

Some of this capital will continue to take the form of greenfield investments and M&A activity (i.e. foreign direct investment, or FDI). But a larger role will need to be played by foreign portfolio investment (FPI), or investments by foreign investors in financial assets from these Asian countries, where the capital markets have historically been undersized relative to their economies and, in some respects, underdeveloped relative to their potential.

The way to expand this desired growth in the capital markets is less clear. A company seeking fresh capital or to achieve liquidity for its early investors and employees by becoming a listed public company may have few good options if it does not satisfy the typical listing requirements, such as historical profit tests, or if it wishes to have alternative governance structures, such as weighted voting rights. Though exchanges in the region have shown some flexibility in order to attract new listings—the HKEX’s and SGX’s adoption of SPAC frameworks and the IDX’s recognition of dual class shares are examples that come to mind—the liberalization has been gradual and, in some ways, reluctant to relax merit-based principles in favor of disclosure-based principles for new listings.

We therefore believe that tapping the U.S. capital markets through SEC-registered IPOs and other offerings by companies in Emerging Asia will become more prevalent, adding to the recent examples of the de-SPACs by Grab, Property Guru and Vinfast and the proposed IPO by VNG, among others. The bar for these offerings is high, requiring, among other things, preparing either U.S. GAAP or IFRS financial statements to U.S. public company standards, implementing rigorous internal controls, and adopting governance standards that, depending on the listing vehicle, may differ greatly from domestic standards. In jurisdictions with foreign ownership and foreign investment limitations, such as Vietnam, it also will be necessary to structure the offering carefully to allow compliance with domestic law. But we believe that, unless domestic or regional listings become more viable and attractive, including with respect to valuation and secondary trading liquidity, more companies will weigh these costs and decide that attempting a U.S. listing is worth it.

This article was first written for and published in Donnelley Financial Solutions (DFIN) guide ‘From Private to Public: Expert Insights for Foreign Private Issuers Pursuing U.S. Public Listing in 2024 and Beyond’.