The market for share sales hasn’t been this bad in nearly two decades, with few willing to take a chance in a grim investment climate.
Just US$198 billion worth of initial public offerings and follow-on sales have been priced so far this year, a 70% drop from a year ago. That puts them on track for the lowest first-half haul since 2005, data compiled by Bloomberg show.
RIght now, who can blame sellers for holding back? The alternative is the challenge of trying to find willing buyers in a stock market down 20% this year as surging inflation, aggressive central bank interest-rate hikes and the risk of a global recession erode sentiment.
And any lingering hopes for a pickup in IPO action keep getting ground down. The Federal Reserve jacked up rates by the most since 1994 on Wednesday, and even after a bounce on Friday, the S&P 500 suffered yet another weekly loss.
“Until relatively recently there was a well-balanced expectation for high quality IPOs to come to market in September,” said James Palmer, Bank of America Corp’s head of EMEA equity capital markets. “But given market events over the last two weeks, that’s re-weighted the degree of hope.”
In addition to heightened volatility and uncertainty, the underperformance of some high-profile 2021 listings is another reason for caution.
Among those that have recently thrown in the towel are Coca-Cola Co, which delayed the planned IPO of a part of its stake in an African bottler, and Asian insurer FWD Group Holdings, said to have postponed a US$1 billion listing in Hong Kong.
Those that have forged ahead had to temper expectations. Life Insurance Corporation of India, once slated to number among the largest fundraisings of the year, slashed the size of its IPO by about 60%.
The drop in volumes has been particularly pronounced in the US, where just $47 billion of equity offerings have been priced, an 85% fall from a year ago.
A boom in blank-check listings helped propel US IPOs to record levels last year, but that has since turned to bust as regulators clamp down on the sector.
Cross-border listings from China, once a steady source of business for New York’s investment bankers, have also stalled amid higher regulatory scrutiny in the aftermath of Didi Global Inc.’s debacle.
Follow-on offerings have been few and far between as last year’s IPOs, typically the top candidates, sell off at a faster pace than the broader market.
“It’s highly improbable we’ll see a re-opening pre-summer, but we should see a pick-up in activity on the other side,” said Gareth McCartney, global co-head of equity capital markets at UBS Group AG.
With quick-fire block trades being easier to execute than long-drawn out IPOs, bankers expect to see large holders opportunistically sell down stakes in the second half of the year. Fresh fundraising by listed companies, even on the spot market, is likely to lag behind stake sales.
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Some of this year’s biggest deals are in listed companies, such as Eletrobras in Brazil and a US$6.7 billion share placement by China’s CATL, the world’s biggest maker of batteries for electric cars.
A few markets have bucked the trend, most notably the Middle East. IPOs there are heading for a record first half as high oil prices and equity inflows shield the region. Energy giant Saudi Aramco is lining up a number of offerings for the second half, seeking to take advantage of elevated commodity prices.
Elsewhere, there’s no dearth of candidates waiting for the right moment. They include chip designer Arm, whose owner Softbank Group Corp aims to list the company by next March, Thai Beverage Pcl’s brewery business, which is making its third attempt at going public, and Volkswagen’s planned share sale of Porsche.
Market conditions are also creating incentives for a second-half rebound in other transactions, such as convertible bond sales and spinoffs.
“We are now going through the bottom of the market, waiting for the revival,” said Shi Qi, head of ECM at China International Capital Corp. “The key question at the moment is just about the timing of the rebound.”