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Global IPO market revival undermined by banking, recession risks

 

Companies are expected to raise just $19.7 billion through initial public offerings in 2023, according to data compiled by Bloomberg. This is down 70% year-on-year and the lowest comparable amount since 2019. The biggest decline was seen in the US, where only $3.2 billion has been raised. The subdued activity continues from last year, when high inflation and aggressive rate hikes by central banks reduced investors’ risk appetite.

Global IPO market revival:

A strong equity rally in early 2023, driven by optimism about China emerging from its Covid zero policy and small rate hikes, has largely defied expectations of the reopening of the IPO market. Trouble in the banking sector in the US following the collapse of some mid-sized lenders, and the woes of Credit Suisse Group AG, have added to uncertainty about the path of interest rates as the US Federal Reserve seeks to control inflation while avoiding a greater crisis. works for

recession risks:

“Rates are the number one issue, and there is an obvious debate on how long the tightening lasts or changes direction and at what speed,” said Udhay Furtado, co-head of ECM, Asia Pacific, at Citigroup Inc.

Referring to when the IPO window might reopen, he said, “There are many things that people will need to watch, including the direction of the central bank, to ascertain whether it is in the second, third or fourth quarter.” Is.” Like it’s going to be back-end.”

IPOs have been lacking in consistency, with the volatility gauge seen well above 20 in March following the collapse of Silicon Valley Bank and other regional US lenders. And there are signs that banking problems are having an impact on companies’ IPO plans.

deal on hold

Bloomberg News reported on Thursday that Oldenburgische Landesbank AG, a private equity-backed German bank, has paused work on a planned IPO due in early May due to investor concerns over the health of the global banking system.

“There’s still so much uncertainty in what’s going to happen later this year that I think it’s really troubling investors a lot,” said Stephanie Niven, portfolio manager of global sustainable equities at Ninety One. An uncomfortable time to invest capital in businesses we don’t know.”

A bright spot in equity capital market activity has been in share sales in listed companies. The data shows that secondary offerings have secured $76 billion this year, up 48% from a year earlier. This includes a block trade in Japan Post Bank that could raise up to 1.3 trillion yen ($9.9 billion), the biggest sale in nearly two years.

Shareholders and companies were quick to sell stock to take advantage of the equity rally at the start of the year and secure funds in a rising rate environment. The high cost of debt also means some companies are discontinuing cross-holding to free up capital to pay down debt and other funding needs.

big selldown

Fomento Economico Mexicano raised €3.7 billion ($4 billion) from a concurrent equity and equity-linked offering in Heineken in February, the largest such deal in Europe, the Middle East and Africa since 2004. Other big selldowns included a $2.4 billion block trade in London. Stock Exchange Groupe plc and Belgian BNP Paribas SA are offloading $2.3 billion in stock.

Companies have also turned to convertible bonds, which allow them to borrow more cheaply, given that the securities carry a call option. From German food delivery company Delivery Hero SE to Chinese video entertainment company IQIYI Inc. and electric-vehicle maker Rivian Automotive Inc. Everyone has sold bonds. Nearly $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 will pick up as soon as a window becomes available, especially for quick, overnight follow-on transactions, while convertibles remain a Will continue to be an attractive funding vehicle. ,

“We remain cautiously optimistic on the outlook for issuance activity,” said Lawrence Jamieson, head of ECM for EMEA, Barclays Plc, on 22 March. A credit shock.”

“What we’ve seen over the past few days is the market working through various tail risks,” he said. ,

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