Banking turmoil and recession risks are spelling trouble for the global initial public offering (IPO) market, keeping it mired in a slump even after investors started the year thinking that the worst of the stocks rout might be over.
Companies have raised just US$19.7 billion via IPOs this year, according to data compiled by Bloomberg. That is down 70 percent year-on-year and the lowest comparable amount since 2019.
The steepest fall was seen in the US, where only US$3.2 billion has been raised. The subdued activity follows on from last year, when high inflation and aggressive rate hikes by central banks sapped investors’ risk appetite.
Photo: AFP
A strong equity rally at the start of this year, driven by optimism about China’s emergence from its “zero COVID-19” policy and smaller rate hikes, has largely fizzled out and dashed hopes for a reopening of the IPO market.
Troubles in the banking sector following the collapse of some mid-sized lenders in the US, and Credit Suisse Group AG’s travails, have added to uncertainty around the path of interest rates as the US Federal Reserve works to contain inflation while avoiding more distress.
“Rate is the number one issue, and there is a clear debate around how long the tightening lasts or changes direction and at what speed,” said Udhay Furtado, cohead of equity capital markets, Asia Pacific at Citigroup Inc.
“There are a number of things people will need to see, including central bank direction, to ascertain whether it’s the second, third or fourth quarter,” he said, referring to when the IPO window might reopen. “At this point, it looks like it’s going to be back-ended.”
The stability that IPOs need has been sorely lacking, with a closely watched volatility gauge spiking well above 20 this month following the collapse of Silicon Valley Bank and other regional US lenders.
There are signs that banking troubles are having an impact on companies’ IPO plans.
Oldenburgische Landesbank AG, a private equity-backed German bank, has paused work on a planned IPO that was expected to take place as early as May because of investors’ concerns over the health of the global banking system, Bloomberg News reported on Thursday.
“There’s still so much uncertainty in what’s going to happen at the back end of this year that I think it’s really causing investors to be quite nervous,” said Stephanie Niven, portfolio manager, global sustainable equities at Ninety One. “This feels like an uncomfortable time to be putting capital into businesses we don’t know.”
The one bright spot in equity capital markets activity has been in share sales in listed companies. Secondary offerings have fetched US$76 billion this year, a 48 percent increase from a year ago, the data show.
That includes a block trade in Japan Post Bank that could raise as much as ¥1.3 trillion (US$9.9 billion), the biggest such sale in nearly two years.
Shareholders and companies were quick to sell stock to take advantage of the equities rally at the beginning of the year and secure funding in a rising rate environment.
The higher cost of debt also means that some companies have been unwinding cross-holdings to free up capital for debt repayments and other funding needs.
Fomento Economico Mexicano raised 3.7 billion euros (US$3.99 billion) from a concurrent equity and equity-linked offering in Heineken NV last month, the biggest such deal in Europe, Middle East and Africa since 2004.
Other large selldowns included a US$2.4 billion block trade in London Stock Exchange Group PLC and Belgium offloading US$2.3 billion in BNP Paribas SA stock.
Companies have also turned to convertible bonds, which allow them to borrow more cheaply, given the securities carry a call option. Firms from German food delivery company Delivery Hero SE to Chinese video entertainment company iQiyi Inc (愛奇藝) and electric vehicle maker Rivian Automotive Inc have all sold the bonds. About US$6.4 billion has been raised in convertibles globally this year, data compiled by Bloomberg show.
Even after the volatility caused by the collapse of Silicon Valley Bank, bankers are optimistic that equity capital markets activity would pick up as soon as there is a window, particularly for quick, overnight follow-on transactions, while convertibles would remain an attractive funding instrument.
PATENTS: MediaTek Inc said it would not comment on ongoing legal cases, but does not expect the legal action by Huawei to affect its business operations Smartphone integrated chips designer MediaTek Inc (聯發科) on Friday said that a lawsuit filed by Chinese smartphone brand Huawei Technologies Co (華為) over alleged patent infringements would have little impact on its operations. In an announcement posted on the Taiwan Stock Exchange, MediaTek said that it would not comment on an ongoing legal case. However, the company said that Huawei’s legal action would have little impact on its operations. MediaTek’s statement came after China-based PRIP Research said on Thursday that Huawei filed a lawsuit with a Chinese district court claiming that MediaTek infringed on its patents. The infringement mentioned in the lawsuit likely involved
Taipei is today suspending work, classes and its US$2.4 trillion stock market as Typhoon Gaemi approaches Taiwan with strong winds and heavy rain. The nation is not conducting securities, currency or fixed income trading, statements from its stock and currency exchanges said. Authorities had yesterday issued a warning that the storm could affect people on land and canceled some ship crossings and domestic flights. Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) expects its local chipmaking fabs to maintain normal production, the company said in an e-mailed statement. The main chipmaker for Apple Inc and Nvidia Corp said it has activated routine typhoon alert
GROWTH: TSMC increased its projected revenue growth for this year to more than 25 percent, citing stronger-than-expected demand for AI devices and smartphones The Taiwan Institute of Economic Research (TIER, 台灣經濟研究院) yesterday raised its forecast for Taiwan’s GDP growth this year from 3.29 percent to 3.85 percent, as exports and private investment recovered faster than it predicted three months ago. The Taipei-based think tank also expects that Taiwan would see a 8.19 percent increase in exports this year, better than the 7.55 percent it projected in April, as US technology giants spent more money on artificial intelligence (AI) infrastructure and development. “There will be more AI servers going forward, but it remains to be seen if the momentum would extend to personal computers, smartphones and
Catastrophic computer outages caused by a software update from one company have once again exposed the dangers of global technological dependence on a handful of players, experts said on Friday. A flawed update sent out by the little-known security firm CrowdStrike Holdings Inc brought airlines, TV stations and myriad other aspects of daily life to a standstill. The outages affected companies or individuals that use CrowdStrike on the Microsoft Inc’s Windows platform. When they applied the update, the incompatible software crashed computers into a frozen state known as the “blue screen of death.” “Today CrowdStrike has become a household name, but not in