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.
The US dollar was trading at NT$29.7 at 10am today on the Taipei Foreign Exchange, as the New Taiwan dollar gained NT$1.364 from the previous close last week. The NT dollar continued to rise today, after surging 3.07 percent on Friday. After opening at NT$30.91, the NT dollar gained more than NT$1 in just 15 minutes, briefly passing the NT$30 mark. Before the US Department of the Treasury's semi-annual currency report came out, expectations that the NT dollar would keep rising were already building. The NT dollar on Friday closed at NT$31.064, up by NT$0.953 — a 3.07 percent single-day gain. Today,
‘SHORT TERM’: The local currency would likely remain strong in the near term, driven by anticipated US trade pressure, capital inflows and expectations of a US Fed rate cut The US dollar is expected to fall below NT$30 in the near term, as traders anticipate increased pressure from Washington for Taiwan to allow the New Taiwan dollar to appreciate, Cathay United Bank (國泰世華銀行) chief economist Lin Chi-chao (林啟超) said. Following a sharp drop in the greenback against the NT dollar on Friday, Lin told the Central News Agency that the local currency is likely to remain strong in the short term, driven in part by market psychology surrounding anticipated US policy pressure. On Friday, the US dollar fell NT$0.953, or 3.07 percent, closing at NT$31.064 — its lowest level since Jan.
Hong Kong authorities ramped up sales of the local dollar as the greenback’s slide threatened the foreign-exchange peg. The Hong Kong Monetary Authority (HKMA) sold a record HK$60.5 billion (US$7.8 billion) of the city’s currency, according to an alert sent on its Bloomberg page yesterday in Asia, after it tested the upper end of its trading band. That added to the HK$56.1 billion of sales versus the greenback since Friday. The rapid intervention signals efforts from the city’s authorities to limit the local currency’s moves within its HK$7.75 to HK$7.85 per US dollar trading band. Heavy sales of the local dollar by
The Financial Supervisory Commission (FSC) yesterday met with some of the nation’s largest insurance companies as a skyrocketing New Taiwan dollar piles pressure on their hundreds of billions of dollars in US bond investments. The commission has asked some life insurance firms, among the biggest Asian holders of US debt, to discuss how the rapidly strengthening NT dollar has impacted their operations, people familiar with the matter said. The meeting took place as the NT dollar jumped as much as 5 percent yesterday, its biggest intraday gain in more than three decades. The local currency surged as exporters rushed to
RSS