THE global market for initial public offerings (IPOs) of stock, which was hot in late 2010, has cooled.
In just a few months, the market has gone from raising record amounts of money to reaching a 10-year high in the number of proposed offerings withdrawn because there was no market.
During this year's second quarter, 98 offerings - which had been projected to raise $US21 billion ($19.5 billion) - were withdrawn, according to calculations by Dealogic.
The number of cancelled offerings was the highest since 129 were stopped in the fourth quarter of 2000, as it became clear that the technology bubble had burst.
The recent boom in IPOs was spread much wider than the one that ended in 2000. The earlier boom was concentrated in the US but the latest included many more companies from booming developing markets, particularly in China.
In the fourth quarter of 1999, the total amount raised by IPOs hit $US66.1 billion, which was a record then. More than three-quarters of that was raised in the US market and most of it was for technology companies. In the final quarter of 2010, $US127 billion was raised, and less than one-quarter of that was raised by offerings in the US.
In the latest quarter, the total raised was about half the level of the fourth quarter of 2010, although the decline in the number of completed offerings, to 406 from 516, was not as sharp.
The market for IPOs virtually collapsed in 2002 and 2003 but then began to recover as sharemarkets rose and many countries reported strong growth. Strong volumes of foreign offerings meant the IPO market had become strong before the financial crisis killed it in 2008 and 2009.
The volume of withdrawn offerings provides a clear indication of rapid changes in markets. Those are deals that underwriters thought they could sell. They went to the expense of preparing offering documents but then were unable to sell, at least at prices acceptable to the companies.
The failed offerings cover the spectrum, both geographically and in the nature of the business. In June, three proposed IPOs that had been expected to yield more than $US1 billion each were withdrawn.
One was a Hong Kong company that mines iron ore in Australia, another a French company that makes glass containers and the third an Indian company that builds and leases communications towers for mobile telephone service providers.
Unlike the collapse in 2000, the latest decline does not follow a widespread collapse in the prices of previously hot new offerings. During the final three months of 2010, when the total amount raised by new offerings set a record, Dealogic counted nine offerings that doubled in price on the first day of trading.
Last week, all of those stocks were still trading above the offering price, although only two - Youku.com, a Chinese internet television company, and TPK Holding, a Taiwanese maker of screens for smartphones and other devices - traded for more than they did on the first day.
Frequently Asked Questions about this Article…
What's happening to the global IPO market and why are IPOs losing appeal?
The global market for initial public offerings has cooled since the hot period in late 2010. Many planned IPOs are being withdrawn because there isn't enough investor demand or acceptable pricing, a sign that market appetite for new listings has weakened.
How many IPOs were withdrawn recently and how much money did they aim to raise?
In this year's second quarter, 98 proposed offerings were withdrawn — they had been projected to raise about US$21 billion (around $19.5 billion) — the highest number of withdrawals since 129 were stopped in the fourth quarter of 2000, according to Dealogic.
Which types of companies and regions are affected by the rise in IPO withdrawals?
Withdrawn deals cover a wide spectrum geographically and by industry. The recent boom included many companies from developing markets (notably China) as well as firms outside the US. Examples of large withdrawn deals included a Hong Kong-based iron ore miner operating in Australia, a French glass-container maker, and an Indian company that builds and leases mobile-phone towers.
What does an IPO withdrawal actually mean for everyday investors?
A withdrawn IPO means underwriters and companies prepared to list but couldn't sell shares at prices acceptable to the company, reflecting rapid market changes and weaker demand. For investors, high withdrawal levels signal fewer new listing opportunities and greater caution around pricing and demand for new issues.
How does the current IPO slowdown compare with past market cycles like 2000 and 2008?
The number of recent withdrawals is the highest since the technology-bubble period in late 2000, but the current decline differs from 2000 because it doesn't follow a broad collapse in prices of newly listed stocks. The IPO market also collapsed in 2002–03 and was later hit by the 2008–09 financial crisis before recovering.
Has the total capital raised from IPOs fallen as well as the number of deals?
Yes. The total amount raised in the latest quarter was about half the level of the fourth quarter of 2010. The number of completed offerings also fell, from 516 to 406, though the decline in completed deals was not as steep as the drop in total capital raised.
Are any recent high-profile IPOs still performing well despite the slowdown?
Some recent hot IPOs have continued to trade above their offering prices. Dealogic counted nine offerings that doubled on their first day during late 2010; as of last week all nine were still trading above their offering prices, although only two — Youku.com and TPK Holding — were trading for more than their first-day peak.
What are the main reasons companies decide to withdraw an IPO?
Companies pull IPOs mainly because underwriters cannot sell the shares at prices acceptable to the company, often due to a lack of market demand or rapid shifts in investor sentiment. Withdrawals can occur even after companies incur the expense of preparing offering documents when market conditions change.
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