Global IPO market plunges 70% as higher rates, war in Ukraine curb risk appetite

DUBAI (BLOOMBERG) - Initial public offerings (IPOs) worldwide have plummeted in the first quarter after a record showing last year, as volatility stoked by the war in Ukraine and soaring inflation sets investors on edge and scuppers deals.

About US$65 billion (S$88 billion) has been raised via IPOs around the world this year, down 70 per cent from US$219 billion 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 Covid-19 pandemic in 2020.

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 last year as unprecedented stimulus measures fueled a surge in global 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 Mr 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 Mr 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, signaling 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 Corp, which planned to raise as much as 654 billion rupees (S$11.7 billion) 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-cheque 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 due to 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, according to sources familiar with the matter.

It is not all doom and gloom, however. While follow-on share sales start to pick up from Asia to Europe and the United States, 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 Ms Andree Chakhtoura, head of investment banking for the Middle East and North Africa at Bank of America Corp. "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 begun to spur capital markets activity.

Qatar's sovereign wealth fund cashed in on a US$1 billion stake in Glencore via an overnight transaction 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.