Global fundraising in the capital markets falls by $900 billion in the first quarter

Global fundraising on capital markets fell by more than $900 billion in the first quarter from the same period in 2021 as rising inflation, the war in Ukraine and volatility in asset prices assets delayed stock prices and hampered bond trading.

Companies raised $2.3 trillion in the first three months of the year through stock sales and new loans in the bond and loan markets, the smallest sum in six years and less than the more than $3.2 trillion. dollars a year ago, according to data provider Refinitiv.

Bankers and investors say that the drop in activity stems from drastic changes in global stock markets and the start of interest rate hikes by the Federal Reserve, which has led money managers to shy away from riskier investments and high-flying stocks.

“The hard part and the scary part about this quarter is the volatility,” said Richard Zogheb, global head of debt capital markets at Citi. “When equity markets go up a lot and then go down a lot, it’s crazy. There is so much uncertainty about where things are going.”

New stock market releases almost dry in the US, with fewer than two dozen companies going public in a traditional IPO so far this year. Globally, stock sales have raised $131 billion, about half the level of last year. That sum is roughly in line with activity in 2019 and 2020, but is due in large part to a string of big listings in Asia, where nine of the year’s 15 biggest IPOs launched. In the US, stock sales are at their lowest level since 2009 at the depth of the financial crisis.

Column chart of first-quarter earnings from stock, bond and loan offerings ($ trillion) showing companies have raised the least amount of capital since 2016

The successful stock market debut of the year LG Power Solutions in South Korea, which raised nearly $11 billion, dwarfs any other float so far this year. That includes the $1.1 billion raised by the buy store TPG Partners in the US and $1 billion per Vaar Energione of Norway’s largest oil and gas producers.

Market volatility also increased borrowing costs in the US corporate bond market to $10 trillion, though companies have still been able to raise the necessary cash.

Total corporate bond issuance fell 7 percent to $1.36 trillion, just over $100 billion below last year’s levels. The drop was led by a notable decline in loans from companies that rating agencies consider riskier.

Some lenders backed off given the volatility, refusing to extend credit or seeking higher borrowing costs when they could be comfortable with the risks. Loans in the high-yield bond market globally fell 72 percent to $59 billion. Issuance in the US totaled just $34 billion for the first quarter, down from $139 billion a year earlier and the lowest first-quarter tally since 2016, when a economic slowdown in china sent shock waves through global markets.

Yields on junk bonds, the debt of low-rated corporate issuers, rose from 4.3% to more than 6%, largely as a result of rising benchmark interest rates, rather than a drastic reassessment of the risk of lending to low-quality companies.

Some stability has been ushered into equity and corporate bond markets of late, even as sovereign bonds, the backbone of the global financial system, have continued to fall in value. That has opened the door for some companies, including fintech firm SS&C Technologies, to turn to investors for capital after postponing planned loans earlier this year.

“Companies can’t wait forever,” said Alexandra Barth, co-head of US leveraged finance at Deutsche Bank. “There is hope that we will see some stability in Europe. There is the possibility of waiting a while, but eventually that patience will dissipate and we will see more offers that have to come to market. Eventually, companies have to accept that this is the new reality.”

Bankers and investors are waiting for the IPO market to reopen in the US, with several private companies worth at least $1 billion seeking to go public. Recent volatility has prompted some investors, including Fidelity and T Rowe Price, to lower their assumptions about the current value of some private holdings. Earlier this month, grocery delivery company Instacart decided cut your own valuation by 40 percent to $24 billion in a new round of financing.

Bar chart of proceeds raised on offering (billions of dollars) showing the largest IPOs of 2022

Although some companies have delayed listing plans until the second half of the year, many companies, such as eye care firm Bausch & Lomb, have continued to update documentation with US securities regulators to be ready to list quickly. when market conditions improve.

“The order book is high and investors have a lot of capital to put to work,” said David Ludwig, director of equity capital markets at Goldman Sachs. “The combination of those two things means that once we see more stability in the broader markets, [IPOs] will be welcome.

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