Initial public offerings (IPOs) have gotten off to a rough start of the year.
Globally, US$26.7 billion worth of IPOs have priced, marking a 60 percent drop from the same period a year earlier. Now, pulled deals are piling up under pressure from roiling markets.
The prospect of interest rate hikes combined with slowing economic growth and geopolitical tensions have set global equities on course for their worst month since the pandemic started. Frothier technology and growth shares, including recent IPOs, have been particularly vulnerable to the selloff as investors flock to cheaper stocks.
“It’s a really tough environment for new listings right now,” BNP Paribas SA head of European equity capital markets Andreas Bernstorff said. “Many investors are grappling with their portfolios turning negative and the rotation into value is depressing appetite for the growth stocks that dominated the IPO market last year.”
In New York, the market turmoil has made at least nine firms call off IPOs, including cloud-based human resources platform Justworks Inc and Four Springs Capital Trust. And the blank-check frenzy that reached a fever pitch in early last year has reversed course, with US$4 billion worth of special-purpose acquisition company listings scrapped this month.
In Europe, start-up WeTransfer pulled its Amsterdam offering on Thursday after it failed to drum up enough investor demand, and a day later German drugmaker Cheplapharm Arzneimittel GmbH put its planned listing on hold. UK law firm Mishcon de Reya LLP has delayed what would have been the world’s biggest law firm IPO for a second time, Bloomberg News reported.
Falling investor demand and rocky markets have caused the value of scrapped IPOs to almost double worldwide from a year ago, hitting US$6.2 billion so far. Another recent casualty was South Korea’s Hyundai Engineering Co, which pulled its US$1 billion listing on Friday after failing to draw demand at the valuation it wanted.
“While the selloff removes some of the froth from the market, and will likely create many opportunities in growth stocks for the long term, it would be a brave decision for a corporate to push for an IPO in the current climate,” Allianz Global Investors global chief investment officer for equities Virginie Maisonneuve said.
In Hong Kong, Asia’s busiest listing venue, proceeds are down by more than 40 percent this year as China’s sweeping regulatory crackdown forces companies to put IPO plans on ice.
Fund managers “have started seeing outflows, which means they’re more focused on repositioning their portfolio rather than buying new issues,” Berenberg’s global head of equity syndicate Fabian De Smet said. “IPOs have quickly moved from the top to the bottom of their priority list.”
Still, some markets seem to have escaped the turmoil. South Korea’s LG Energy Solution raised US$10.7 billion in the country’s biggest-ever IPO and went on to soar almost 70 percent in its debut on Thursday last week.
India is also gearing up for a record listing: State-owned insurer Life Insurance Corp of India is expected to go public soon in a deal that could value it at as much as US$203 billion, Bloomberg News reported.
And IPO markets could bounce back quickly if market swings die down. If listing candidates are mindful of investor caution on pricing, this year could turn its rough start around.
“In general, most companies are still moving forward with their IPO plans and could find a window to launch,” China International Capital Corp (中國國際金融) equity capital market head Shi Qi (施琦) said. “As long as the valuation expectation of the issuer is in line with market conditions, I think there is still demand for IPOs.”
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