Bankers Cautious of 2023 Recovery Following 2021 IPO Downturn

IPOs are on track to experience their longest dry spell since the global financial crisis, and bankers don't anticipate a resurgence in the near future.

The combination of increasing inflation and interest rate increases, which are intended to control it, have had a negative effect on stock market values and have caused investors to become less interested in the high-growth IPOs that have been the driving force behind deals in recent years. This year, only $207 billion has been raised from listings, which is a 68% decrease compared to last year. Even though there has been a rise in flotations in China and the Middle East, it has not been enough to make up for the lack of activity in the US market.

Edward Byun, co-head of Asia ex-Japan equity capital markets at Goldman Sachs Group Inc., stated that two conditions must be met for ECM activity to resume: stability in inflation and a clear path for interest rate hikes. He believes that once investors are certain that inflation has reached its peak and have a better understanding of the rate outlook, likely in the second quarter of 2021, the market will start to move forward.

It appears that the proceeds from global IPOs are headed for a significant decrease compared to 2008.

Bloomberg data shows that this year's listings slump is the most severe since 2008, when IPO values dropped by 73%. 2021 saw a surge in IPOs, with a record-breaking $655 billion being raised. However, since then, tech companies that have yet to become profitable have seen a decrease in investor interest, while consumer firms have been unable to find the necessary investor support due to rising inflation.

The performance of many of last year's initial public offerings (IPOs) has been disappointing, with the average 2021 US market debutante down 19%. This is especially true for EV startup Rivian Automotive Inc, which has seen its stock price drop by nearly 70%.

The US IPO market has been a major source of difficulty, impacted by the decrease in special purpose acquisition companies (SPACs) that drove the growth in 2021. Listings of $24 billion are the least since 1990 and have dropped 93% compared to 2021, with financial advisors indicating that investors will prefer to invest in more established companies when it comes to IPOs in the coming year.

This year, the amount of money raised through US Initial Public Offerings (IPOs) was the lowest since 1990, totaling $23.9 billion.

Bankers predict that China and the Middle East will remain strong markets in 2022, despite the recent rise in Covid cases in China as restrictions are lifted and the declining oil prices that are impacting the stock markets of Gulf countries.

Mandy Zhu, head of China, global banking at UBS Group AG, commented that the Chinese government's relaxation of regulations on the property sector, combined with the diminishing of Covid-19 restrictions, is likely to lead to a market rebound. She noted that there has already been an uptick in activity in both onshore and offshore markets.

Despite the current property market downturn and China's strict Covid-Zero policy, businesses in mainland China have still managed to raise a record-breaking $92 billion from IPOs this year. Meanwhile, companies in the Middle East have raised nearly $23 billion.

This year has been a difficult one for equity capital markets bankers, but cash calls from companies looking to strengthen their balance sheets have been a bright spot. Nearly $716 billion of rights issues have been launched, just shy of the record $759 billion in 2021. As debt becomes more costly and economies slow, this trend is likely to continue.

This week, the Federal Reserve dashed expectations of a dovish tilt, leading many to believe that a quick revival of initial public offerings is unlikely.

Gareth McCartney, global co-head of ECM at UBS, predicted that the IPO market will gradually return to normal in the coming year. He noted that there is still uncertainty about whether the market will experience distress or growth issuance, and that investors will be choosy when it comes to different products.

It appears that the US will be the first to recover from the economic downturn, as there have been indications of a rebound with increased block-trade activity. Investors are keeping an eye out for some of the IPOs that are expected to take place this year, such as Epic Games Inc., the owner of Fortnite, Instacart Inc., the delivery giant, and Fanatics Inc., the sports apparel retailer.

Jerome Powell, the current Chairman of the Federal Reserve, is seen as the key figure in determining when the US IPO window will reopen in 2023. His decisions and actions will be closely watched by investors and analysts alike as they look to the future of the stock market.

McCartney from UBS stated that Europe will come after Asia in terms of recovery, and this will be dependent on China's reopening rather than inflation's trajectory.

According to Andreas Bernstorff, the head of equity capital markets at BNP Paribas SA, it is anticipated that listings will be released in small amounts in the upcoming year, potentially as early as the first quarter. However, the IPO market will only be available to a few industries. It is likely that cyclical and value sectors will be sought after, with energy transition and climate tech companies having the potential to draw in strong interest.

China is predicted to experience a number of transactions in the upcoming year. Meanwhile, Abu Dhabi National Oil Co. has selected banks to direct the Initial Public Offering of its natural gas enterprise in the Middle East, which could be one of the region's most significant flotations. In London, bankers and regulators are striving to keep homegrown tech companies in the city, particularly since SoftBank Group Corp has chosen to list UK chip designer Arm Ltd in New York.

Due to the postponement or cancellation of numerous deals, the IPO pipeline is becoming increasingly lengthy. Among the companies that have delayed their initial public offerings this year are Eni SpA's multibillion dollar renewables arm and ABB Ltd., which raised some funds privately in June for the $750 million float of its electric-vehicle charging business that was postponed.

VinFast, an electric carmaker supported by Vietnam's wealthiest individual, has submitted an IPO in the United States that could bring in at least $1 billion, aiming to take advantage of the growing interest in clean energy stocks. Additionally, India's most valuable startup, Byju's, is in the process of finalizing a $1 billion listing of its tutoring business, Aakash Educational Services, according to people familiar with the situation.