Facebook’s disappointing showing is a sign of the times for global IPOs
Initial public offerings have fallen 34% this quarter as Facebook’s disappointing debut and worsening economic conditions rattled investors, pressuring companies to lure buyers with cheaper valuations.
IPOs globally raised $41.3bn (€32.6bn), the worst second quarter since 2009, data by Bloomberg show. That compared with $62.7bn a year ago. At least 50 companies shelved sales as Europe’s debt crisis spread, growth prospects slowed in China, and Facebook’s stock sank 17% from its May 17 IPO price.
“With the economy and with Europe, there are more questions than answers in investors’ minds, and they want some clarity before they put their money down,” said Matt McCormick, who helps oversee $6.2bn at Bahl & Gaynor. “After what happened with Facebook, people want IPOs to go off without a hitch.”
Facebook flopped after pricing its IPO at more than 100 times earnings and kicked off a month-long drought in the US global IPOs that followed, including Felda Global Ventures Holdings Bhd, a Malaysian palm-oil plantation operator, and EQT Midstream Partners.
Companies including Evonik Industries, LaShou Group, and Tria Beauty scrapped their IPOs rather than brave a resurgence in stock-market volatility. The swings dampened investors’ risk appetite, making it harder for companies to get the prices they want.
The Standard & Poor’s 500 Index, the benchmark gauge for US equities, rose or fell an average of 1% a day in June, about twice the rate of the previous five months. Price swings are approaching levels from last year, when the S&P 500’s daily move of 1.3% between April and December was twice the five-decade average.
“What you’ll get now is high-quality companies with valuations that are reasonable given the lack of appetite and the volatility in the market,” Joe Castle, New York-based head of equities syndicate at Barclays, said at a briefing this month. “The market usually rebuilds from there.”
Felda jumped more than 16% in its first day of trading after pricing its shares below the top of the proposed range. EQT Midstream, an operator of natural-gas pipelines in the northeastern US’s Marcellus Shale region, has risen 15% after offering a higher dividend yield than peers in its IPO.
Coty, the perfume maker that recently withdrew a takeover offer for Avon Products has filed to raise as much as $700m in an IPO in New York.
US IPOs rose 67% this quarter to $22.7bn, buoyed mainly by Facebook’s $16bn sale and Carlyle Group’s May 2 IPO. ServiceNow, the maker of cloud-based business software, raised $210m in its IPO yesterday, pricing the shares above the proposed range. The shares gained as much as 33% in the first day of trading in New York.
Carlyle has advanced less than 1% since its debut. PetroLogistics, operator of the world’s biggest propylene plant, had dropped 40% since its May 3 offering.
The MSCI World Index, the benchmark gauge of equities in 24 developed markets, sank 8.5% this quarter through yesterday. Western Europe IPOs raised only $896m, 95% less than in the year-earlier period.
“For European IPOs, the overriding concern remains the region’s macro situation,” said Darrell Uden, UBS’s London-based co-head of equity capital markets for Europe, the Middle East, and Africa. “For these deals to go ahead, volatility also needs to come down to an acceptable level, which we haven’t yet seen.”
Some companies scaled back deals to match shrinking demand. Inner Mongolia Yitai Coal, the biggest coal producer in the Chinese region bordering Mongolia, is seeking as much as $1.1bn in a Hong Kong additional stock offering after first planning to raise as much as $1.5bn, a term sheet showed this week. Xiao Nan Guo Restaurants Holdings, the Chinese chain that shelved its IPO in Hong Kong last year, revived the sale with a lower price range and seeks about $66m.
Given the lack of demand, Joe Reece, global head of equity capital markets at Credit Suisse Group, said he is advising most IPO clients to expect good conditions for a sale early next year. “Overall appetite for risk is compressing right now,” he said. “A lot of things have to go right for this year to finish strong.”
Morgan Stanley is on track to lead global IPO underwriting by market share for the third year in a row, partly thanks to the Facebook offering. The New York-based bank nabbed the top spot in 2011 after working on that year’s biggest IPO, the $10bn London and Hong Kong offering by Glencore International. In 2010, Morgan Stanley helped complete the $22.1bn IPO by Agricultural Bank of China in Shanghai and Hong Kong, history’s biggest initial share sale.
Asia, which accounted for almost half of global IPO funds raised in 2011, had its slowest second quarter for IPOs since 2009, generating $12.9bn for companies, as a projected slowdown in China’s economic growth has weighed on stock markets in the region. The most populous nation, whose economy expanded 10.4% in 2010, is forecast to grow 8.2% this year.
Manchester United scrapped plans to list in Singapore and is exploring a sale in the US, while Formula One also shelved a listing plan in Singapore until later this year due to volatility.
One exception was Felda, which raised $3.3bn in its Malaysian IPO, the largest initial sale since Facebook. That indicates south-east Asia’s capital markets may pick up the slack for a slowing China, said Ronald Wan, a Hong Kong-based managing director at China Merchants Securities.
“The shift of investors’ attention to south-east Asia may continue at least through the end of the year,” Wan said. “South-east Asia offers a good alternative to global investors.”
As long as Europe’s debt crisis goes unresolved and the US economic recovery remains uncertain, stocks will struggle and IPOs will encounter slack demand, said Jack Ablin, chief investment officer of BMO Harris Private Bank in Chicago.
“Recent experience hasn’t been great for individual investors,” said Ablin, who helps oversee about $60bn of assets. “There appears to be a distrust of equity markets in general, and the problem is that IPOs as a segment require an additional level of optimism and faith, both of which are lacking right now.”
Bloomberg
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