IPO market plummets 70% as volatility and inflation dampen risk appetite

Middle East is bucking the trend as high oil prices help regional markets to sharply outperform international ones

Traders work at the New York Stock Exchange. About $65 billion has been raised through IPOs around the world in 2022, down 70 per cent from $219bn in the first three months of last year. AP

The number of Initial public offerings (IPOs) worldwide has plummeted in the first quarter after a record showing in 2021, as volatility stoked by the war in Ukraine and soaring inflation sets investors on edge and scuppers deals.

About $65 billion has been raised through IPOs in 2022, down 70 per cent from $219bn 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 proceeds since the onset of the coronavirus pandemic in 2020.

This is probably the worst time in five years in terms of market sentiment

Li Hang,
head of equity capital markets and syndicate at CLSA

Still, companies such as renewable energy provider Plenitude and skincare business Galderma are lining up to test investors’ appetite for new shares in the coming months.

Stock market listings set a record in 2021 as unprecedented stimulus measures fuelled a surge in equities to all-time highs. Now, the backdrop could not be more different, with central banks raising interest rates in response to mounting inflation and investors spooked by Russia’s invasion of Ukraine.

“This is probably the worst time 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 sharp market swings have prompted investors to steer clear of companies with high forecast growth rates yet relatively little in the way of current profits – the kind of stocks that dominate the IPO market.

“You need a more stable market to find the level at which IPOs can clear,” said Saadi Soudavar, Deutsche Bank’s co-head of equity capital markets for Europe, the Middle East and Africa.

The Cboe Volatility Index, a widely watched gauge of expected market swings, jumped above 30 when Russia invaded Ukraine and has had an average reading of about 26 this year, signalling IPOs might be too risky of an investment to receive sufficient appetite.

Historically, a majority of global listings have been priced when the index has been below 25.

Wild market swings have scuttled IPOs from New York to New Delhi.

Life Insurance Corporation, which planned to raise as much as 654 billion rupees ($8.5bn) for the Indian government with an offering before the end of March, now is looking at a mid-May timeline. The offering would be one of the largest global listings this year.

Even quick-fire deals such as blank-check offerings, which are typically priced in a matter of 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 wanes because of poor returns and heightened regulatory scrutiny.

Investment banks are starting to feel the effects. UBS Group began laying off a handful of bankers in equity capital markets in Europe, the Middle East and Africa this month, sources said.

Life Insurance, which planned to raise as much as 654 billion rupees ($8.5bn) for the Indian government with an offering before the end of March, now is looking at a mid-May timeline. AFP

It is not all doom and gloom, however.

While follow-on share sales start to pick up from Asia to Europe and the US, IPOs have been bucking the global trend and racing ahead in the Middle East, where high oil prices and rising interest rates are helping regional markets sharply 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.

“There is a wider and deeper market now than there has ever been before, and the offering is diversified.”

Many major commodities are trading at or near record levels, with the war in Ukraine raising supply concerns. This has already spurred capital markets activity.

The Middle East is the one bright spot in an otherwise quiet global ECM market

Andree Chakhtoura,
head of investment banking for Mena at Bank of America

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

Bankers continue to bet on a recovery in the second quarter, fuelled in part by a full pipeline of large listing candidates preparing to tap public investors and the green shoots of a stock market rebound.

“A key question is when we can price the substantial pipeline of European IPOs waiting in the wings. We are hoping the answer is as early as May, June,” said Deutsche Bank’s Mr Soudavar.

A number of high-profile listings from the likes of Thyssenkrupp’s Nucera and Italian green hydrogen specialist Industrie De Nora are in the works in Europe.

In the US, Rihanna’s Savage X Fenty lingerie company and SoftBank Group-backed chipmaker Arm are among the big-ticket IPOs bankers are working on.

In Asia, private equity company PAG and electric vehicle maker Hozon New Energy Automobile are in the pipeline with billion-dollar-plus offerings.