IPO Market Drops 70% as Higher Rates and War Reduce Risk Appetite

About $65 billion has been raised through initial public offerings worldwide in 2022, down 70% from $219 billion in the first three months of last year, according to data compiled by Bloomberg. That puts the global market on track for the lowest quarterly revenue since the start of the coronavirus pandemic in 2020. Still, companies like renewable energy provider Plenitude and skincare business Galderma are lining up to test the investor appetite for new shares in the coming months.

Stock market quotes set a record high in 2021 as unprecedented stimulus measures fueled a surge in global stocks to all-time highs. Now the backdrop couldn’t be more different, with central banks raising interest rates in response to rising inflation and investors spooked by the Russian invasion of Ukraine.

“This is probably the worst moment in five years in terms of market sentiment,” said Li Hang, head of equity capital markets and syndicate at brokerage CLSA.

Rising interest rates combined with wild market swings have prompted investors to steer clear of companies with high forecast growth rates but relatively low current earnings, the kind of stocks that dominate the IPO market.

“A more stable market is needed to find the level where IPOs can be liquidated,” said Saadi Soudavar, co-head of equity capital markets for Europe, Middle East and Africa at Deutsche Bank AG.

The Cboe volatility index, a widely watched indicator of expected market swings, jumped above 30 when Russia invaded Ukraine and has had an average reading of around 26 this year, indicating that IPOs could be too much of an investment. risky to get enough appetite. Historically, most global stocks trade when the index has been below 25.

Wild market swings have plunged IPOs from New York to New Delhi. Life Insurance Corp., which had planned to raise up to 654 billion rupees ($8.5 billion) for the Indian government with an offer before the end of March, is now eyeing a mid-May timetable. The offering would be one of the largest global listings this year.

Even quick deals like blank check deals, which are typically priced within days, are falling by the wayside. The vehicles, also known as special purpose acquisition companies, are shelving their listings at a record pace this year as investor enthusiasm fades due to low yields and heightened regulatory scrutiny.

Investment banks are beginning to feel the effects: UBS Group AG this month began laying off a handful of bankers in equity markets in Europe, the Middle East and Africa, according to people familiar with the matter.

bright spots

However, not everything is pessimism. While follow-on stock sales are beginning to pick up from Asia to Europe and the US, IPOs have bucked the global trend and made rapid progress in the Middle East, where high oil prices and rising interest rates are helping regional markets far outperform international ones.

“The Middle East is the one bright spot in an otherwise quiet global ECM market,” said Andree Chakhtoura, head of investment banking for the Middle East and North Africa at Bank of America Corp. “Now there is a broader and deeper market than before. never before, and the offer is diversified”.

Many major commodities are trading at or near record levels, and the war in Ukraine raises supply concerns. This has already started to stimulate activity in the capital markets.

Qatar’s sovereign wealth fund cashed in a $1 billion stake in Glencore Plc through an overnight transaction on March 23, while WE Soda, one of the world’s largest producers of natural soda ash, is evaluating options, including an initial public offering in London, reported Bloomberg News.

strong finish

Bankers continue to bet on a second-quarter recovery, buoyed in part by a full pipeline of big-listing candidates ready to tap public investors and the green shoots of a stock market rally.

“A key question is when we can put a price on the significant portfolio of European IPOs waiting in the wings; we expect the answer to be as early as May or June,” Deutsche Bank’s Soudavar said.

A series of high-profile listings are in the works in Europe for companies such as Thyssenkrupp AG’s Nucera and Italian green hydrogen specialist Industrie De Nora SpA. In the United States, Rihanna’s Savage X Fenty lingerie company and chipmaker Arm Ltd., backed by SoftBank Group Corp., are among the big IPOs bankers are working on. In Asia, private equity firm PAG and electric-vehicle maker Hozon New Energy Automobile Co. are in the pipeline with bids of more than $1 billion.

“The glass-half-full view is that we could have a busy second quarter in the equity capital markets,” said Andreas Bernstorff, head of equity capital markets for Europe, Middle East and Africa at BNP Paribas SA. stock-linked transactions and deals rebound first, with IPOs scheduled after Easter on the back of Q1 numbers.”

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