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IPO funds raised globally may have plummeted 61 per cent in first quarter amid banking crisis, high inflation, EY says

South China Morning Post 29/03/2023 Enoch Yiu

In Asia-Pacific, the number of IPOs is expected to decline by 6 per cent, with proceeds slumping by 70 per cent
While the mainland's IPO market was affected by Covid-19 lockdowns last year and the country's sealed borders, Hong Kong was more affected by international events, Asia-Pacific IPO leader at EY says

Funds raised by newly listed companies globally might have plummeted by 61 per cent in the first quarter, as high inflation and a banking crisis pushed firms to put their initial public offering (IPO) plans on hold, EY said.

The number of IPOs globally is poised to decline by 8 per cent to 299 in the January to March period compared to a year earlier, with proceeds falling by 61 per cent to US$21.5 billion, the international accounting firm said in a report on Thursday morning.

In Asia-Pacific, the number of IPOs is expected to decline by 6 per cent to 175, with proceeds slumping by 70 per cent to US$12.7 billion. Mainland China and Hong Kong were also down in the first quarter.

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"Mainland China locked down many cities due to Covid-19 last year and fully reopened its borders only this year," Ringo Choi, Asia-Pacific IPO leader at EY, said in an interview. "This has affected the number of IPOs in the first quarter.

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"Hong Kong, which is an international financial centre, was more affected by international events such as the banking turmoil in the United States and Europe."

A disappointing first quarter in terms of IPO results shows the continuation of last year's poor momentum. The number of new listings globally plummeted 45 per cent year on year to 1,333 in 2022, while the funds raised last year slumped 61 per cent year on year to US$179.5 billion.

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Three mid-sized US banks including Silicon Valley Bank, which focused on lending to technology start-ups, collapsed over the past month, unleashing market turmoil that spilled over to Europe, forcing the sale of Credit Suisse to Swiss rival UBS last week.

"Over the past few years, the technology sector has been the driver of a lot of IPOs," Choi said. "And now it sounds like there are some problems in the sector, which will trouble the IPO markets in general."

The IPO by Adnoc Gas, a unit of the UAE's Abu Dhabi National Oil Company, is the world's biggest IPO so far this year. It raised US$2.5 billion in an offering in Abu Dhabi in March.

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As far as Hong Kong is concerned, IPO proceeds in the first quarter dropped 50 per cent year on year in the absence of a blockbuster deal, according to a separate report by KPMG on Wednesday. Mainland IPOs, meanwhile, in Shanghai and Shenzhen also fell by 55 per cent in this three-month period.

The Shanghai Stock Exchange scrapped a meeting scheduled for Wednesday to evaluate a listing plan by Syngenta Group, China's state-controlled seeds and agrichemicals powerhouse. This has delayed what could be this year's biggest IPO. If approved, Syngenta, a Swiss company acquired by China National Chemical Group in 2017, could raise as much as 65 billion yuan (US$9.5 billion). No new hearing date has been set.

Moreover, the outlook for the second quarter is not optimistic, even with bourse operator Hong Kong Exchanges and Clearing implementing a listing reform that allows pre-revenue technology companies to raise funds in the city from Friday, said Kenny Wen, head of investment strategy at Hong Kong-based broker KGI Asia.

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"The international banking turmoil is not yet over, and the global investment markets are full of uncertainties," Wen said. "The HKEX reform may help attract some tech firms to list, but that is not strong enough to offset other negative factors in the market.

"The IPO markets in Hong Kong and other parts of the world might only become better in the second half of this year."

Taking a more positive view, EY's Choi said the IPO market in Hong Kong and mainland China will bounce back in the second half and might even go further in 2024. The HKEX listing reform alongside the Hong Kong government's efforts to attract listings by Middle Eastern companies will generate more new IPOs, he added.

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Hong Kong, which has been the world's top IPO market seven times in the past 14 years, stood in third place in 2021 and last year.

Louis Lau, a capital markets partner at KPMG China, was more optimistic and pointed out that the mainland had introduced economic stimulus to revive IPO activity.

"We remain cautiously optimistic about the A-share IPO market for the rest of the year," Lau said. The mainland has more than 800 companies waiting to list, while Hong Kong will have a healthy IPO pipeline with more than 90 active applicants at the end of the quarter, he added.