IPO market in both the U.S. and China to remain strong in the near term, VC exec says

SINGAPORE — Going public is expected to the be the main exit road for most start-ups in the near term as corporations are likely to put their merger and acquisition plans on hold due to the coronavirus pandemic, according to the CEO of Vertex Holdings.

Vertex is the venture capital arm of Singapore state investor Temasek Holdings and has more than $3 billion in assets under management as well as over 200 active portfolio companies. It has six network funds that invest in early-stage tech start-ups, health care start-ups and growth-stage companies spanning across places like the U.S., China, Israel, Southeast Asia and India.

“I think the IPO market is still going to continue to be strong based on what we can see so far. I think U.S. market will remain strong for the short term and then also for China market, continue to be very strong IPO market,” Chua Kee Lock said on CNBC’s “Squawk Box Asia” on Monday.

Vertex has two companies that are planning to go public next year, one in the U.S. and the other in China, according to Chua. The firm has backed some prominent names including Southeast Asia’s ride hailing giant Grab.

Initial public offerings will be “the key exit road for most start-up companies,” Chua said, adding, “But at the same time, when things do recover, perhaps second half of next year, we’ll see some larger companies looking for opportunities and they will start beginning to acquire companies in this region and even in other parts of the world.”

A sizeable number of companies have already gone public this year despite global economic uncertainties surrounding the coronavirus pandemic — particularly in the technology sector in both the U.S. and China. And more are lining up for their debut, including Airbnb and DoorDash. This year’s most anticipated initial public offering was set to take centerstage in Hong Kong and Shanghai where Alibaba-affiliate Ant Group, which operates the massive Alipay system, was set to go public before the record-setting listing was suspended.

The trade war and growing technology rivalry between the United States and China remain on the radar for investors and companies alike. Though U.S. companies are optimistic about doing business in the world’s second-largest economy following President-elect Joe Biden’s victory this month, experts have said the tension between the countries is unlikely to go away under a Biden administration.

Vertex’s Chua said he expects trade tensions to linger for the foreseeable future even under Biden. China will view the U.S. as an unreliable supplier and therefore would push for the development of domestic companies and industries, he explained. The U.S. would, in turn, continue to see China as a threat and would work to keep critical technologies from getting into the country, Chua added.

“You would continue to see that bifurcation,” he said, adding that start-ups would have to navigate that separation.