The risks of banking turmoil and recession are writing the first lines of crisis in the global IPO market, sending it into the doldrums, even after public investors begin to believe the worst in equities is over.
This comes after the companies raised only $19.7 billion through initial public offerings in 2023, according to data compiled by Bloomberg, and viewed by Al Arabiya.net. This is a 70% drop year-on-year and the lowest similar amount since 2019.
The sharpest fall was seen in the United States, where only $3.2 billion was raised. This idle activity follows a slowdown starting from last year, when rising inflation led central banks to tighten aggressive policies and curb investors’ risk appetite.
Troubles in the banking sector after the collapse of some medium-sized US lenders, Credit Suisse, added to uncertainty about the path of interest rates as the US Federal Reserve works to contain inflation while avoiding further distress.
“The interest is the number one issue, and there is a clear debate about how long the tightening lasts or changes direction and quickly,” said Uday Furtado, co-head of Asia Pacific equity markets at Citigroup.
“There are a number of things that people will need to see, including the direction of central banks, to ascertain whether this is the second, third or fourth quarter,” he added, referring to when the IPO window will reopen.
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Oldenburgische Landesbank AG, a German bank backed by private equity firms, has halted work on a planned IPO that was expected to happen as early as May due to investor concerns about the health of the global banking system, Bloomberg News reported Thursday.
“There’s so much uncertainty about what’s going to happen at the end of this year that it’s making investors even more nervous,” said Stephanie Nevin, global portfolio manager at Ninety One. “This seems like an inconvenient time to put capital into companies we don’t know.”
While the bright spot this year was in offerings, related to the secondary sale of shares in listed companies, which brought in $76 billion this year, an increase of 48% over last year. That includes selling a stake in Post Bank Japan, which could rise to as much as 1.3 trillion yen ($9.9 billion), the largest such sale in nearly two years.
Shareholders and companies rushed to sell shares to take advantage of the activity in the stock markets at the beginning of the year and to secure financing in a rising environment. The high cost of debt also means that some companies will resort to freeing up capital through public offerings to pay off debt and other financing needs.