Saturday 30 Mar 2024
By
main news image

This article first appeared in Personal Wealth, The Edge Malaysia Weekly on June 24, 2019 - June 30, 2019

The global IPO market went through a challenging time in the first half of the year, according to Baker McKenzie’s mid-June Cross-Border IPO Index 1H2019. Capital raised through both domestic and cross-border listings fell 37% year on year while volume shrank 34%.

So far, a total of US$69.8 billion has been raised in 514 deals — the lowest dollar amount and listing volume since 2016. The declines were sharper than expected, the report says.

In Asia-Pacific, the capital raised through IPOs and the volume fell during the period, declining 40% to US$24.3 billion and 33% to 305 listings respectively.

The report attributes the underperformance to recent and ongoing geopolitical events, such as the US federal government shutdown early in the year, China-US trade tensions and increased uncertainty about Brexit, the already precarious negotiations of which were dealt a double blow with British Prime Minister Theresa May vacating her post in early June and the revision of the exit’s deadline to October.

With a global recession forecast to happen some time next year, the report suggests that small issuers may decide to delay their listing while others may decide to accelerate their time frame ahead of any potential economic meltdown. Another source of uncertainty could rear its ugly head in 2020 — when the US presidential election cycle moves into high gear.

 

Weaker cross-border IPO demand

After a strong showing last year, global cross-border IPO activity struggled in 1H2019 with total value down 55% to US$11.3 billion and volume down 16% to 85 listings recorded. Even so, these were the second-highest levels seen since 2014, according to the report.

Accounting for much of the downturn were Chinese issuers, many of whom stayed on the sidelines. Capital-raising efforts by Chinese issuers fell just over 40% from US$15.3 billion raised in the first half of last year to just US$8.8 billion as at 1H2019.

Meanwhile, the majority of cross-border IPOs in the first six months of the year were in Asia-Pacific, accounting for 80% of the total cross-border capital raised and 75% of the listings. Asia-Pacific cross-border activity saw a total of 50 listings with value declining 41% to US$7.5 billion.

China remains the most active source of cross-border issuers with much of the remainder of cross-border deal activity coming from North America, where US$3.5 billion was raised, representing a fall of 62% from the first half of 2018.

Elsewhere, there were just three cross-border deals in the Europe, Middle East and Africa (EMEA) countries, raising a total of US$305 million and value plunging 91% from last year in what the report notes as a possible sign of the scale of uncertainty over Brexit.

The recent underperformance of various mega IPOs has also prompted issuers to adopt a “wait-and-see” approach, according to the report. Issuers seem to have held off listing in the early months of 2019 as they waited for the markets to turn more favourable.

A total of 10 mega IPOs, which raised more than US$1 billion each, were recorded in the first half of the year, raising a total of US$24.3 billion. This was in contrast to the same period last year, which saw 18 mega IPOs recording US$40 billion with a steeper decline in capital-raising than in the volume of listings.

Moving forward, it is possible that in the second half of the year, issuers are going to take into account the pricing and valuation concerns of certain mega IPOs. As a result, it is possible that the market will be more conservative in pricing some of the larger listings slated for the rest of the year.

 

Domestic listings decline

The total amount of domestic capital raised around the world fell 32% to US$58.5 billion while the number of IPOs recorded fell 37% to 429.

The most noticeable slide was in the EMEA countries. Concerns about Brexit, coupled with an economic and industrial slowdown, resulted in capital-raising efforts in the region falling 64% year on year while the number of domestic listings fell nearly 60%.

That said, domestic North American activity helped bolster the underwhelming numbers out of the EMEA countries. North America was the only region to show an increase in capital raised (13%). But while value increased, the volume of listings fell 22%. This was due to the 30-day government shutdown at the start of the year, which also impacted the US Securities and Exchange Commission.

In terms of sectors, financials logged the best numbers in the first half of the year, ahead of high technology and healthcare. The sector raised a total of US$18.5 billion, the majority of which (US$16.3 billion) was via domestic listings. Nonetheless, this represented a near 30% year-on-year drop in the amount raised by the sector. In total, it has seen 108 IPOs globally so far, roughly a quarter less than in 2018.

The high-tech sector saw a total value of US$18.5 billion in the first half of the year, down 14% from the previous corresponding period, while volume was 20% lower to 81 deals so far this year.

High-tech saw two notable mega IPOs — that of ride-sharing and technology giants Uber Inc and Lyft — which struggled to meet expectations on the back of profitability issues, a lack of support for valuations and no clear path to recording a profit.

However, other recent technology listings, such as Pinterest Inc, Zoom Video Communications Inc and PagerDuty Inc, saw healthy investor interest and their respective counters have rallied significantly since going public. Even so, the Baker McKenzie report notes that the underwhelming performance of Lyft’s IPO could have spooked investors into more conservative pricing ahead of the other technology listings.

As for healthcare, a total of US$6.4 billion was raised in 1H2019, a drop of 51% on last year’s capital-raising. Deal volume was down 18% to 62 IPOs so far.

 

Stock exchange performance

The much-anticipated listing of Uber saw the New York Stock Exchange (NYSE) retain its top spot on the leader board of exchanges by capital raised. The tech company’s US$8.1 billion listing was enough to keep Nasdaq in second place, according to the report. All told, the NYSE raised a total of US$20.1 billion in 1H2019.

Nasdaq raised US$15.2 billion, down 4% year on year but a significant 116% higher than in 1H2017.

Meanwhile, the National Stock Exchange of India recorded a whopping 359% rise in capital raised while the Korea Exchange and Saudi Arabia’s Tadawul posted increases of 80% and 221% respectively. Italy’s Borsa Italiana also recorded an uptick in capital, thanks to payment service company Nexi’s US$2.27 billion IPO.

Hong Kong was the leading destination for cross-border IPOs in the first half of the year, raising US$7.2 billion from more than 40 companies based in China, Macau, Malaysia, Singapore and the US. Nasdaq was the second most attractive destination for cross-border IPOs, raising a total of US$2.2 billion from 24 companies based in China, Israel, Singapore, France, Hong Kong, Cyprus and Colombia.

Despite the well-documented Brexit uncertainty, the London Stock Exchange was among the top 10 destinations for IPO capital-raising in 1H2019 with US$2.7 billion raised so far this year, albeit down 46% from the first half of 2018.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.

      Print
      Text Size
      Share