- Date : 25/04/2023
- Read: 4 mins
Why is Asia dominating the global IPO market with most of the action this year? Take advantage of the revival of the IPO market. Read now to find out more.
As the stock market rebounds, companies worldwide are taking a bold step to test investor appetite for new listings. The global market for initial public offerings (IPOs) shows signs of life, with nearly $25 billion worth of IPOs prices in March and April alone, starkly contrasting the listings of drought in the year's first two months. Despite the positive trend, a full-fledged recovery seems distant, with Asian companies dominating the scene as they lead the IPO revival. Bloomberg's data highlights that the bulk of the IPO action is taking place in Asia, painting a bright future for investors who wish to seize the opportunity in this ever-evolving market. This article aims to provide a holistic view of situations across the globe to enable investors to be more informed.
Declining market volatility has created a global window of opportunity for issuers, with nearly 80% of new share sales in April occurring in Asian and European regional exchanges. US issuers remain cautious due to recession fears. Despite smaller deal sizes, IPO activity remains 51% below last year. However, companies have restarted IPO processes, with green shoots of activity emerging, though buy-side caution may delay 2023 deals until 2024. Continued observation and strategic planning are necessary for this ever-changing IPO market.
An EY report titled "How ready are you to go public when the opportunity arises?" revealed that Asia-Pacific was the leading region in the IPO market in Q1 2023, with 59% of global IPO deals. However, global IPO volumes decreased by 8%, and proceeds dropped by 61% year-over-year.
The IPO market shows signs of life and renewed vigour in Asia, with issuance coming from a broader range of countries compared to 2022, when most deals were focused on mainland China. Two nickel producers in Indonesia have had a strong debut, making the country the most impressive performer. Japan's largest IPO since 2018 was raised by Rakuten Bank Ltd., and Hong Kong's biggest offering of 2023 was raised by ZJLD Group Inc., a Chinese liquor company backed by KKR & Co.
Although the IPO market is not fully back yet, James Wang, co-head of equity capital markets at Goldman Sachs Group Inc. in Asia ex-Japan, believes it is coming back gradually and slowly. The signs of life in the market are promising and indicate that there may be renewed interest in IPOs across Asia.
Also Read: IPO (Initial Public Offer)
Revival in Europe
The European IPO market has been struggling, with a 12% decrease in 2023 activity compared to last year when Russia invaded Ukraine, causing listings to halt. The poor IPO returns have caused portfolio managers to drive hard bargains on valuations, refusing to pay the top dollar for new, unproven companies. Additionally, investor worries about interest rates and inflation have increased due to the sudden meltdown of Credit Suisse Group AG, further complicating listing plans.
However, there are signs of improvement as Italian gambling company Lottomatica SpA opened books last week for a €600 million ($657 million) IPO, becoming the third large firm to tap European exchanges this year. Despite both stocks having a difficult time since their initial public offerings, Ionos SE, a web-hosting company based in Germany, and EuroGroup Laminations SpA, a manufacturer of electric motor components, have collectively secured over $400 million in funding from the region.
Also Read: IPO Valuation: How is the IPO price decided?
US Losing Ground
The US IPO market faces challenges, with only $4.1 billion raised for listed companies this year. Nextracker Inc., Atlas Energy Solutions Inc., and Enlight Renewable Energy Ltd. accounted for one-third of the total amount. Excluding them and a dozen SPACs, most new listings would be categorised as penny stocks.
"Citing a world full of uncertainty," Greg Martin, co-founder of Rainmaker Securities, stated that "new issuances suffer the most from uncertainty." Concerns over a potential US recession and uncertainty surrounding the Federal Reserve's interest rates policy remain. "How do you price a deal when you don't know what the cost of capital should be on a forward-looking basis," added Patrick Galley, CEO & CIO of RiverNorth Capital Management. Galley believes that clarity over interest rates is key to resolving these issues.
The global market for initial public offerings shows signs of life, with nearly $25 billion worth of IPOs prices in March and April alone, with Asian companies dominating the scene. However, IPO activity remains 51% below last year, with the US market facing challenges due to concerns over a potential recession and uncertainty surrounding the Federal Reserve's interest rates policy. Despite smaller deal sizes, companies have restarted IPO processes, but caution may delay 2023 deals until 2024. Strategic planning and continued observation are necessary for this ever-changing IPO market.