IPO-ready firms waiting on the sidelines

LACKLUSTER Despite the postpandemic reopening of the global economy, this year’s IPO scene been slow. Source: Chart from EY Global IPO Trends Q2 2023.

The global initial public offering (IPO) scene was lackluster in the first half of 2023 but it may start to pick up pace later in the year as economic conditions improve and as major central banks end their hawkish cycle, according to research conducted by Ernst & Young Global Ltd.

EY Global IPO Trends Q2 2023 reported that 615 IPOs had been conducted globally, raising $60.9 billion in fresh capital in the first semester. The number of firms selling equity to the public for the first time declined 5 percent while proceeds fell 36 percent from the past year.

“These modest results reflect slower global economic growth, tight monetary policies and heightened geopolitical tensions. However, some emerging markets are booming with IPO activities, as they benefited from the global demand for rich mineral resources, their vast population, growing unicorns and entrepreneurial small- and medium-sized enterprises,” EY said.

While the technology sector continued to be the leading sector in listing activities this year, energy IPO proceeds dwindled as global energy prices softened, the report said.

The Asia-Pacific IPO market maintained its position as the global leader in both volume and value, with around 60 percent share so far. Of the top 10 global IPOs, half were from mainland China. The region saw 371 firms raising $39.4 billion by going public, down 2 percent and 40 percent, respectively. Proceeds declined significantly due to a cooler-than-expected mainland China market, with many large IPOs waiting on the sidelines.In Southeast Asia alone, the report noted an increase in six-month IPO volume of 26 percent to 82 deals, while the value of capital-raising grew 31 percent to $3.3 billion.

Indonesia has been a “shining light” in the region, hosting 45 IPOs in the first half, with total proceeds of $2.2 billion—surpassing Hong Kong in the global bourse rankings by deal count.

“Boasting a vast population and robust economic growth, the country is propelled by its rich mineral reserves—vital for green energy production—and strategic privatization of state-owned enterprises,” the report said.

Aside from Indonesia, EY reported a string of small-cap tech IPOs raising $500 million in 16 deals in Malaysia, while Thailand hosted listings from a diverse range of sectors that similarly raised $500 million in 15 deals in the first half.

3 IPOs in PH so far

The Philippines recorded three IPOs (Repower Energy Development Corp., Upson International Corp. and Alternergy Holdings Corp.) that raised a sum of $77.7 million, followed by Singapore, where three public listings raised $21.1 million.

“The Philippines faced many headwinds at the start of the year. Inflation peaked at 6.1 percent in the first half of the year while global events continue to impact the local economy, which countered the gains from strong domestic demand in 2023. Unsurprisingly, these, among other factors, influenced the number of IPOs the country had this year,” said Kristopher Catalan, SGV Assurance Partner and Philippines EY Private Leader.

“Overall, the Asean (Association of Southeast Asian Nations) IPO scene looks promising despite geopolitical uncertainties and stringent regulatory environments with some of our Asean peers leading the way with listings of companies that are involved in green energy and technology, sectors which thrived during COVID and continue to thrive postpandemic. Companies that are planning for IPOs need to prepare early on to demonstrate a sustainable business model, adapt with agility to new technologies and AI applications, and implement sound capital management policies and practices. There are still merits to a well-prepared game plan even in this day and age,” he said.

Paul Go, EY Global IPO Leader, said that against the backdrop of a divergent global economy and unpredictable geopolitical landscape, some stock markets were reaching a long-time high and enjoying low volatility.

“Certain theme-centric sectors such as technology and clean energy are signaling an upswing in IPO activity. Large, well-established companies are demonstrating enduring resilience, while growth narratives with more realistic and acceptable valuation are becoming more receptive by the market. In this shifting environment, companies need to prepare now to be ‘IPO-ready’ for any forthcoming windows,” he said.

Silver liningThe report anticipates a resurgence in global IPO activity to start in late 2023.

After the one mega spinoff IPO debut in the United States that has outshone all other traditional IPOs—referring to the $3.8-billion maiden offering of Johnson & Johnson’s spinoff consumer health firm Kenvue—EY expects the trend to persist.

While the number of IPOs remained flat in the first semester, America saw an increase in proceeds of 86 percent, raising $9.1 billion, mostly due to the Kenvue deal.

“Large corporate spinoffs and carve-out listings will likely surface across major markets, as companies seek to create more shareholder values through divestiture while investors lean toward mature, profit-making businesses amid a yet-to-revive IPO market,” EY said.

Understanding the different requirements of going public in each market that companies plan to enter is essential to meet investor expectations and avoid potential delays due to regulatory issues, the report said.

“Investors will continue to be more selective, orienting toward companies with solid fundamentals and proven track record,” the report said. INQ

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By Doris Dumlao-Abadilla
@Philbizwatcher