Planned initial public offerings worth more than $21bn have been pulled from the global market in the first two months of the year, a figure almost double the amount raised through successful flotations, new data will show on Thursday.
The value of cancelled or postponed deals, the highest on record for the first two months of any year according to data tracked by Thomson Financial, underlines the degree to which the credit market turmoil is hurting investor appetite in the once-buoyant equity capital markets.
Such a poor start to the year marks a sharp contrast to previous years, including 2007 when global IPO issuance reached an all-time high. Indeed, this month is set to become the first February since 1992 in which new issues were less than those of traditionally slow January.
“When there is a lot of risk aversion and volatility in markets, demand for IPOs dries up,” said John Crompton, head of equity capital markets for Europe, Middle East and Africa at Merrill Lynch. “Investors are not keen to buy into companies selling shares for the first time or will only do so at significantly lower prices.”
In the past two months, 62 share deals worth $21.4bn were pulled. This compares with $1.5bn worth of deals withdrawn during the same period last year.
Meanwhile, $13.3bn has been raised in the first two months of the year, with 100 flotations completed. Activity was dominated by companies from emerging economies, which accounted for a record 84.7 per cent of total activity. Among the biggest is a flotation by China Railway Construction in Shanghai.
There are 34 IPOs raising in excess of $1bn planned this year, mostly from emerging market issuers. But one of the biggest is expected in the US from Visa Inc, the world’s largest credit card network, which said this week it was hoping to raise up to $18.8bn.
Bankers say that, in spite of the weaker appetite for new share issues so far, activity in the rest of the equity capital markets is likely to pick up. “Depending on which way the economy develops, there may be a need for companies to repair their balance sheets or to finance consolidating acquisitions, and this may drive equity new issue activity, if not IPOs,” says Merrill Lynch’s Mr Crompton.