First-time offers are on track to have their worst dry spell since the global financial crisis, and bankers don’t see a turnaround any time soon. Stock market valuations have been negatively impacted, and investor enthusiasm for the high-growth IPO prospects that have powered transactions in recent years has been undermined by a combination of growing inflation and interest rate increases intended to control it. Only $207 billion had been raised through listings this year, which is 68% less than last year, as a boom in flotations in China and the Middle East was unable to compensate for the stagnant US market.
“For ECM activity to return, two conditions must be met: stability in inflation and clarity of rising interest rate trajectory,” claims Edward Byun, co-chief of Goldman Sachs Group Inc. ‘s Asia ex-Japan equities capital markets. “If there is proof that inflation has peaked and clarity on the rate prediction, the market will begin to advance – maybe in the second quarter of next year.
It doesn’t help that many of the IPO stars from the previous year are underwater. The group of 2021 US market debutantes, including once-highly sought-after EV upstart Rivian Automotive Inc., is down over 70% since coming public on average.
A drop in the blank-check agreements that were the driving force behind the spike in 2021 has been one of the largest drags on the US IPO market. The $24 billion in listing volume is the lowest since 1990 and is down 93% from 2021, according to bankers, who also predict that investors would pick reliable company flotations in 2019.
Bankers predict that the two markets that performed well in 2022—China and the Middle East—will likely continue to do so, despite the Asian country experiencing an increase in infections as it abandons its Covid curbs and the stock markets of Gulf countries being negatively impacted by falling oil prices.
“We are anticipating a market recovery given that the Chinese government is easing rules on the real estate industry and we are observing a clear trend of removing Covid restraints, “Mandy Zhu, head of global banking for China at UBS Group AG, said. The amount of activity in both onshore and offshore markets has already grown. In contrast to the Middle East, mainland Chinese companies raised a record $92 billion through IPOs this year, defying the country’s Covid Zero policy and the ongoing real estate crisis.
In what has largely been a poor year for equity capital markets bankers internationally, cash demands from corporations looking to strengthen their balance sheets have stood out, and they will continue to profit as debt prices rise and economies struggle. This year’s rights offerings came to about $716 billion in total, just shy of the record $759 billion in 2021.
Nevertheless, few see a speedy recovery of IPOs given that the Fed crushed hopes this week of a dovish turn. “We anticipate a gradual return to normalcy in the IPO market in 2019. Investor demand will be selective in each product because there isn’t currently a clear path into crisis or growth issuance, according to Gareth McCartney, global co-head of ECM at UBS. According to him, the US will probably be the first to bounce back, and there are already early indications of that with rising block-trade activity. Epic Games Inc., the company that owns Fortnite, Instacart Inc., and Fanatics Inc. are IPOs that investors are keeping an eye on this year.
Then, according to UBS’s McCartney, Europe will follow. However, Asia’s recovery will be more dependent on China’s openness than it will be on the direction of inflation. Even though only a small number of industries will have access to the IPO market, listings are expected to happen gradually in 2019, maybe as early as the first quarter, according to Andreas Bernstorff, head of equity capital markets at BNP Paribas SA. Energy transition and climate tech enterprises in particular are well positioned to draw large demand, while value-based and cyclical sectors are anticipated to be in demand.
The IPO of Abu Dhabi National Oil Firm’s natural gas company in the Middle East, which might be one of the biggest flotations in the city, will be led by banks next year. Next year, there are likely to be several deals in China. In especially in light of SoftBank Group Corp.’s intention to list UK semiconductor company Arm Ltd in New York, bankers and authorities in London are working hard to safeguard regionally based tech companies.
The IPO pipeline is getting longer since there have been so many projects delayed or abandoned. The multibillion-dollar renewables division of Italy’s Eni SpA and ABB Ltd., which secured some money privately for the postponed $750 million IPO in June of its electric-vehicle charging company, are among the companies that have delayed their flotations this year.
To capitalize on the demand for clean energy stocks, an electric vehicle manufacturer backed by Vietnam’s richest man, VinFast, filed for an IPO in the US that could raise at least $1 billion.Meanwhile, India’s most valuable startup, online-education giant Byju’s, is finalizing plans for a $1 billion listing of its tutoring business Aakash Educational Services, according to people familiar with the situation.
A rush of initial public offerings (IPO) activity will take place in 2023. According to data from the Prime database, in 2023, roughly 89 enterprises would enter Dalal Street to raise close to Rs 1.4 trillion. To give you a sense of how much money was raised using this technique in 2021, 63 separate companies raised a combined sum of Rs. 1.19 trillion in India through initial public offerings. Comparatively, from January to November 2022, 33 businesses raised Rs. 55,145.80 crores. The names that SEBI has allowed and those that are currently seeking approval are listed below:
Some fund managers claim that throughout the preceding three years, IPOs helped them produce alpha. The process of producing alpha has grown difficult as markets continue to reach new heights. Due to the shares of certain newly listed firms trading below their issue price, some investors are increasingly hesitant to engage in initial public offerings (IPOs). “Many new-age businesses came into the scene at comparably high valuations only to see a quick fall and an ensuing loss of investor cash. The regulator appears to be swiftly addressing the underlying issues that led to such an incidence.
The regulator has been loud about its plan to impose extra obligatory disclosures and conduct other actions, according to Nirav Karkera, CEO of Fisdom.deliberate steps to ensure that the valuation process used and the final value determined are consistent with best practises and are justifiably high. According to him, the regulator’s increasing focus has deterred many modern businesses from going the IPO route. The higher danger of being forced to accept a lower valuation solely because the regulator has a different perspective may be the reason of this.
Since businesses like Nykaa, Zomato, and PB Fintech had significantly decreased shareholder value, the head of investment banking at a brokerage company expressed his belief that the concerns will endure until and unless the prices of freshly listed corporations are back to their IPO price levels.
BoAt postponed its expected public share sale to raise $60 million from private investors, and according to rumors, Snapdeal has opted to delay its scheduled IPO because of “current market circumstances. Although there hasn’t been a final decision made, Ola, which has started to make a profit, may consider applying for an IPO the following year.
Edited by Prakriti Arora