Global IPOs in 2021 blow past $817 billion mark in best year on record

Leading the IPO pack is electric-truck start-up Rivian, which raised nearly US$12 billion in New York in November 2021. PHOTO: BLOOMBERG

LONDON (BLOOMBERG) - Global initial public offerings (IPOs) have smashed their previous record this year, propelled by a blank-cheque boom and companies cashing in on high valuations.

With six weeks to go, about 2,850 businesses and special purpose acquisition companies (Spacs) have raised more than US$600 billion (S$817 billion) in IPOs, leaving the records for both deal count and proceeds reached in 2007 in the dust, according to data compiled by Bloomberg.

Leading the pack is electric-truck start-up Rivian, which raised nearly US$12 billion in New York this month.

Asia's biggest was China Telecom's 54 billion yuan (S$11.5 billion) IPO in August, while Polish parcel-locker provider InPost seized the top spot in Europe with its 2.8 billion euro (S$4.3 billion) Amsterdam listing in January.

These companies took advantage of record-high stock prices, as central bank support kept investors flush with cash. And the economic recovery from the Covid-19 pandemic along with stimulus measures helped boost corporate earnings.

Still, it has not all been smooth sailing. Regulatory scrutiny has cooled the Spac craze, which reached a fever pitch early this year.

China's crackdown on technology companies over the summer sent shockwaves through global markets, halting the record rush of Chinese listings in the United States and casting a shadow over Hong Kong's IPO market.

"We are moving from a perfect market for IPOs with plenty of liquidity and deals performing well to a more normal environment" where investors are more selective, said Mr Gareth McCartney, global co-head of equity capital markets at UBS Group.

Dizzying Heights

A retail-buying frenzy that sent stock markets on a rollercoaster ride this year, along with investor appetite for hot sectors has fuelled some dizzying post-listing pops.

Rivian, which has yet to generate revenue, more than doubled in its first few sessions, briefly surpassing Volkswagen in market value, while South Korea's SK Bioscience surged 160 per cent in its debut.

These outsized gains have fanned worries of a bubble. The S&P 500 Index is trading at more than 21 times projected earnings in the next year, well above its 10-year average. Stocks are near their most expensive level since the dot-com bubble of 2000.

"As monetary stimulus programmes are scaled back, and if global growth slows sharply, markets could be heading for a correction," said Ms Susannah Streeter, senior analyst at Hargreaves Lansdown. "Overvalued companies will feel the pain much faster than others."

Down to earth

Fund managers have become pickier amid the glut of deals and many have seen early gains dissipate. TikTok rival Kuaishou Technology is one of this year's roughest IPOs, falling 16 per cent below its listing price after shares more than tripled initially.

The IPO crops of 2021 in the US and Europe are now on average underperforming regional equity benchmarks.

Some IPO stocks disappointed right off the bat. High-profile debut flops include the 27 per cent drop in Indian digital-payments provider Paytm's parent last week, British food-delivery start-up Deliveroo's 26 per cent slide and US insurer Oscar Health's 11 per cent drop in March.

Particularly in the second half of the year, scrapped listings have piled up, including healthcare property company Icade Sante in France, investment-software firm Allvue Systems Holdings in the US and Novotech Health in Hong Kong.

While some have pushed their IPO plans into next year, risks for global equity markets are stacking up, including surging inflation that could prompt tighter monetary policies. Hikes in interest rates could hamper economic growth and slow earnings momentum.

"Markets are going to face a more normalised environment in 2022," said Mr William Smiley, co-head of equity capital markets at Goldman Sachs in Asia ex-Japan. "Expectations for higher inflation are going to challenge risk assets and particularly equities."

Spac clouds gather

The outlook for Spacs is also murky. They reached an all-time high of US$159 billion this year, but slowed dramatically from April. Regulators in the US, by far the biggest market, are clamping down on accounting practices, while vowing tougher oversight.

"The Spac fervour has calmed and that's good for the ongoing health of the market as issuance is now at a more sustainable level globally," said Mr James Palmer, Bank of America's head of equity capital markets in Europe, the Middle East and Africa.

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