After this year’s IPO slump, bankers wary of 2023 relief

Bloomberg

Initial public offerings are heading for their longest drought since the global financial crisis — and bankers don’t expect a revival anytime soon.
A mix of rising inflation and interest rate hikes aimed at taming it have hurt stock market valuations and eroded investor appetite for the high-growth IPO candidates that have driven deals in recent years. Just $207 billion have been raised this year from listings — 68% down versus last year — as a surge in flotations in China failed to make up for a frozen US market.
“Two things are needed for ECM activity to resume: stability around inflation and visibility on the trajectory for interest rate hikes,” said Edward Byun, co-head of Asia ex-Japan equity capital markets at Goldman Sachs Group Inc. “Once there is conviction inflation has peaked and clarity on the rate outlook — likely in the second quarter of next year — we will begin to see the market move forward.”
This year’s listings slump is the worst since IPO values tumbled 73% in 2008, according to Bloomberg data. It follows a 2021 boom, when peaking stock markets and a US blank-check listing craze led to an unprecedented $655 billion IPO haul. Since then, however, high-growth tech companies without a path to profitability have lost favor while consumer firms are finding investor support lacking as inflation surges.
It doesn’t help that so many of last year’s IPO stars are under water. On average, the crop of 2021 US market debutantes are down 19% since going public — among them once highly sought-after EV startup Rivian Automotive Inc, which is down almost 70%.
The US IPO market has been one of the biggest drags, hit by a collapse in the blank-check deals that were behind 2021’s surge. Listing volumes of $24 billion are the lowest since 1990 and down 93% over 2021, with bankers saying that investors will favor stable companies flotations next year.
The two markets that did well in 2022 — China and the Middle East — are likely to continue to do so, say bankers, even though the Asian nation is seeing a surge in infections as it drops its Covid curbs and falling oil prices are dragging down Gulf countries’ stock markets.
“Given the Chinese government is loosening regulations on the property sector and we are seeing a clear trend of loosening Covid constraints, we are expecting a market rebound,” said Mandy Zhu, head of China, global banking at UBS Group.
With so many deals postponed or scrapped, the IPO pipeline is growing longer.