IPOs run out of steam as selling rocks global stock markets
Globally, IPOs worth $26.7 billion were completed, down 60% from the same period a year earlier. Today, the agreements concluded are piling up under the pressure of the turbulent markets.
The prospect of interest rate hikes combined with slowing economic growth and geopolitical tensions put global equities on track for their worst month since the start of the pandemic. Foamier tech and growth stocks, including recent IPOs, have been particularly vulnerable to selling as investors flock to cheaper stocks.
“It’s a very difficult environment for new listings at the moment,” said Andreas Bernstorff, head of European equity capital markets at BNP Paribas SA. “Many investors are struggling with portfolios turning negative and the spin-to-value is reducing the appetite for growth stocks that dominated the IPO market last year.”
The Cboe Volatility Index, an indicator of expected market swings, also known as the VIX, jumped 60% this month, a red flag for further equity selling.
In New York, market turmoil prompted at least nine companies to cancel their IPOs, including cloud-based human resources platform Justworks Inc. and Four Springs Capital Trust. And the blank check frenzy that peaked in early 2021 has reversed, with $4 billion in special purpose acquisition company listings removed this month.
In Europe, startup WeTransfer withdrew its Amsterdam bid on Thursday after failing to generate enough investor demand, and a day later German drugmaker Cheplapharm Arzneimittel GmbH suspended its planned listing. British law firm Mishcon de Reya LLP has delayed what would have been the world’s largest law firm for the second time, Bloomberg News reported.
Lower investor demand and tough markets have caused the value of canceled IPOs globally to nearly double from a year ago, reaching $6.2 billion so far. Another recent casualty was South Korea’s Hyundai Engineering Co., which pulled its billion-dollar listing on Friday after failing to attract demand at the valuation it wanted.
“While the selloff removes some of the scum from the market and will likely create plenty of opportunity in long-term growth stocks, it would be a brave move for a company to push for an IPO in the current climate.” , said Virginie Maisonneuve. , Global Chief Investment Officer for Equities at Allianz Global Investors.
In Hong Kong, Asia’s busiest trading venue, commodities have fallen more than 40% this year as China’s sweeping regulatory crackdown forces companies to halt plans to go public.
Fund managers “have started to see exits, which means they are focusing more on repositioning their portfolio rather than buying new issues,” said Fabian De Smet, global head of the syndicate. Berenberg shares. “IPOs quickly moved from the top to the bottom of their priority list.”
The biggest IPOs that had been announced at this time in 2021 were from the technology, online services and e-commerce sectors, including TikTok rival Kuaishou Technology in Hong Kong, Polish parcel locker provider InPost SA and American dating app Bumble Inc.
These companies saw demand increase during the shutdowns, but initial gains quickly collapsed as economies reopened. Nine of last year’s 10 biggest IPOs are now underwater, with ride-sharing company DiDi Global Inc.’s 73% plunge since its listing at the top of the pack. Electric truck maker Rivian Automotive Inc. has had a dizzying run, falling 67% from its peak a week after selling shares in November.
And a year after Robinhood Markets Inc. found itself at the center of the meme stock storm, the retail brokerage is down 85% from last year’s high and reported earnings and outlook for the first quarter that missed the estimates. The company is one of the world’s worst high-profile stock market debuts since the start of the pandemic, joining Didi and London’s THG Plc.
As stock markets hit new highs in 2021, IPO valuations have been particularly frothy. But poor post-listing performance and several high-profile flops made investors more selective.
“Overall, it looks like the market and appetite will be more subdued than last year,” said Chi Chan, portfolio manager at Federated Hermes. “The question is will the market be ready to digest the number of trades at the valuations they want?”
However, some markets seem to have escaped the turmoil. South Korea’s LG Energy Solution raised $10.7 billion this month in the country’s biggest IPO and soared nearly 70% in its Thursday debut. India is also gearing up for a record listing: state insurer Life Insurance Corp. of India is expected to go public soon in a deal that could value it up to $203 billion, Bloomberg News reported.
And IPO markets could rebound quickly if market swings ease. After a record high in the VIX index in March 2020, new offers began to return two months later. If listing candidates are aware of investors’ price caution, 2022 could get off to a rocky start.
“In general, most companies are still moving forward with their IPO plans and might find a window to launch,” said Shi Qi, head of ECM at China International Capital Corp. “As long as the issuer’s valuation expectation is in line with market conditions, I think there is always demand for IPOs.”
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