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Global IPOs hit turbulent weather
The global market for initial public offerings collapsed in the third quarter in its worst performance since early 2003, with Europe and the United States leading the decline.
- Reuters
- Published: 23:32 September 26, 2008
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New York: The global market for initial public offerings collapsed in the third quarter in its worst performance since early 2003, with Europe and the United States leading the decline.
Worldwide, the third quarter saw only 86 IPOs, raising $8.7 billion (Dh31.93 billion), according to Thomson Reuters data, compared with 151 deals yielding $35.4 billion in the previous quarter. The drop from the year-ago quarter, when 303 IPOs raised $51 billion, was even steeper.
So far this year, IPO proceeds globally are down 56 per cent as investors worldwide, unnerved by jumpy markets, have fled unproven companies in favour of safer securities.
Negative effect
"If there's one thing that negatively affects issuance, it's volatility," said Tom Fox, head of global capital markets for the Americas at UBS Investment Bank.
With volatility at five-year highs in the US and record levels elsewhere, Fox said, timing and pricing deals has become much more difficult.
The Chicago Board Options Exchange Volatility Index or VIX, stood at 32.82 on Thursday, 3.4 points below the five-year closing high of 36.22 set on September 17.
This is almost nine points above the last trading day of the second quarter when the VIX closed at 23.95. The VIX, Wall Street's fear gauge, is now more than double its level in mid-May when it closed at 16.3 on May 15.
"If they don't have execution certainty, issuers back off and buyers back off," Fox said.
Europe and the US have traditionally accounted for the bulk of IPOs worldwide. Though the two regions make up nearly half of IPO activity so far this year, that's down from about a 55 per cent market share a year ago.
In Europe, IPO proceeds in the third quarter fell to $1.4 billion from $11.5 billion in the prior quarter, while the United States saw only four deals yield a total of $930.6 million. The third quarter was the worst in the US since the first quarter of 2003.
Without the mammoth $19.7 billion IPO by credit card operator Visa Inc in March, which has allowed the US to keep its bragging rights as the world's biggest IPO market, US IPO proceeds would have been down 77 per cent so far this year.
While other regions have languished, the Middle East, buoyed by high energy prices, has emerged as a major IPO market, tripling its market share in the last year to $11.1 billion, or 14 per cent, in the third quarter.
Chinese power
China is the second largest market after the US so far this year with 103 deals yielding $16.8 billion, with Saudi Arabia's 12 deals yielding $7.6 billion, in hot pursuit.
And though activity in China has slowed to a fraction of last year's activity, Fox expects it to resume in short order.
"There is a backlog of Chinese companies waiting to go public," he said.
But the overall United States economy will have to recover for global IPOs to pick up, said an analyst.
"This recession now upon us impacts our trading partners and therefore the profitability of foreign companies," said Scott Sweet, a senior managing partner with advisory firm IPO Boutique.
Eight of the top 10 largest global IPOs so far this year have taken place in emerging markets, including the third quarter's largest deal, the $2.5 billion IPO by Ma'aden, a Saudi mining company, in a deal led by JP Morgan & Co.
The quarter's second largest deal was the August IPO by China South Locomotive, which netted the railmaker nearly $1.6 billion.
The Ma'aden deal helped propel JP Morgan to the No 1 spot among global IPO underwriters so far this year, up from its No 7 ranking at this time last year.
Right behind JP Morgan is UBS AG, Citigroup, HSBC Holdings plc and Merrill Lynch, which is the No 1 IPO underwriter in the US.
Offering some glimmer of hope, there is a global pipeline of IPOs worth $116.7 billion waiting in the wings.
Fox says the recent actions by the US Federal Reserve and its Treasury could help the markets worldwide.
"You need to have stability in the financial markets," Fox said. "What the Fed and the Treasury are working on is going to be a big part of bringing back stability."
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