Activity in equity capital markets (ECM) in the third quarter of the year slowed to the lowest point since the fourth quarter of 2011, Thomson Reuters data showed on Wednesday, as market volatility put the brakes on companies trying to list on the stock market. The value of global ECM transactions for the quarter hit $126 billion, a 55 percent drop compared with the second quarter of the year. Initial public offers (IPOs) in the first nine months fell by 35 percent to $119.1 billion compared with the same period last year.
"A spike in volatility in the Euro Stoxx and S&P (indexes) caused by the global macro uncertainty has led to this year to date being quieter than last year in terms of IPO issuance," said Edward Sankey co-head of ECM EMEA for Deutsche Bank. "The increased volatility can make IPOs more difficult to execute if pricing becomes irrelevant within a week." The VIX volatility index - Wall Street's "fear gauge" - reached 40.74 at the end of August as the market was shaken by weak growth data for China. This was the index's highest close since 2011, at the height of the European debt crisis.
Europe was the worst hit region for new share offers, with proceeds from ECM activity down 22 percent at $173.6 billion in the first nine months compared with the previous year, while the United States was the strongest-performing country with $193.6 billion in proceeds. Goldman Sachs topped league table for ECM transactions by fees in the first nine months of the year, earning $58.581 million, followed by J.P. Morgan and Morgan Stanley.
FORTUNES TURN IN ASIA Proceeds from equity deals in Asia ex-Japan sank 57 percent quarter-on-quarter to $42.2 billion, with the worst quarterly volume for initial public offerings since March 2013 as Chinese regulators put on hold the approval of new listings. Deal values in the year to date are still up more than 40 percent, totalling $197.2 billion after a stellar first half of the year, but expectations of robust ECM fees in 2015 are all but gone now, after China's market bull run suddenly reversed course in June.
"There are a few bright spots but in the very short term many issuers remain tentative as they weigh their options against market conditions and valuations that they were not expecting earlier this year," said Jerome Leleu, co-head of Asia-Pacific ECM at Morgan Stanley, which ranked third in equity underwriting in the region year to date. "On the investor side, market uncertainties such as the (US) Fed rate decision and China's growth concerns persist, prompting institutions to remain cautious in reviewing their exposures."
Despite a large and growing pipeline of deals in Hong Kong, very few companies are likely to launch any big deals in the coming weeks, bankers said. State-owned bad debt manager China Huarong Asset Management and snack maker Dali Foods Group late last month won approval for their Hong Kong IPOs, slated to raise up to $4.5 billion in total, but have decided to await better market conditions. However, market observers think there are reasons to be optimistic for the close of the year.
"Europe is now an area where few are questioning growth," said Richard Cormack, co-head of European ECM at Goldman Sachs. "It has turned a corner, QE will stay in place at least until this time next year, so monetary conditions in Europe will continue to be very supportive, even when the Fed starts to tighten." Dutch bank ABN Amro, valued at 15 billion euros ($16.90 billion), is still expected to come to market by the end of the year, while in the United States work is underway to list payments processing company First Data, which could be worth over $20 billion.
"In general investors will spend more time on valuation; they will be more sensitive to it," said Achintya Mangla co-head of EMEA ECM at J.P. Morgan. "But that does not mean that they are not willing to invest in companies and pay a premium for exciting or rare stories with solid structural growth."
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