World Economy

Global IPOs Slow in Q1

Falling markets, tighter rules and more fundraising options are blamed for the latest decline
Bombay Stock Exchange has been enjoying an increase in new company listings, as India overtook China  in the number of listings in the first quarter of 2018.
Bombay Stock Exchange has been enjoying an increase in new company listings, as India overtook China  in the number of listings in the first quarter of 2018.

The number of companies that listed their shares in 39 countries from January to March dropped 12% to 360 from the same period a year earlier, according to research company Dealogic.

The drop in initial public offerings was the first since the April-June period of 2016, when market debuts slumped amid jitters triggered by the UK's decision to leave the European Union in June of that year, Nikkei reported.

The latest decline is being blamed on falling stock markets, tighter regulations in China and more options available for businesses to raise funds as global investors seek ways to invest their excess cash.

The number of IPOs decreased especially in China, according to Dealogic. The country had topped the rankings of IPOs in every quarter since the October-December period of 2015, but the number fell 64% from a year ago to 49 in the latest quarter.

According to Daiwa Securities' Yukino Yamada, the number of companies awaiting results of the listing screening process has been rising for several years amid an IPO boom in China.

The country's market authority has been prioritizing listings of higher quality companies and alleviating congestion. In late 2017, it ordered underwriting brokerages to change their IPO screening process, which had an impact, Yamada said.

In Japan, the figure fell 30% from a year ago to 21, mainly due to a decrease in listings of assets by investment funds. One such listing last year was Sushiro Global Holdings by Permira, a UK private equity fund. Moreover, businesses do not have too much trouble raising funds without listing their shares, given the prolonged period of ultra-low interest rates in Japan.

Growth Through IPOs

India overtook China in the number of new listings in the first quarter of 2018, with a rise of 50% to 57.

In India, "the guidelines for listing insurance companies have been fleshed out, and this has helped prompt more companies to list since late last year," said Kenji Hashizume of Sumitomo Mitsui Asset Management (Hong Kong), adding that many of the companies listing are financial institutions.

There is a general trend for Indian businesses to seek growth through IPOs, prompted by the economic reforms of Prime Minister Narendra Modi.

In the United States, the number of IPOs increased 30% to 39. "There is this situation in the US where companies are likely to seek to list on exchanges before rate increases dampen economic growth," said Makoto Murayama of Nomura Securities.

But some analysts say that IPOs may be on the decline as large tech companies, such as Apple and, buy prospective companies before they seek to list their shares.

Indian IPO Fervor Cools

Going by the tepid response to recent high-profile IPOs, investors in India have become a lot more sensitive to valuations and growth prospects of companies as market volatility increases.

That could affect the number of issues in the pipeline, especially as the outlook for Indian stocks is also weakening, and limit New Delhi's ability to reach its revenue target from share sales.

So far, nearly two dozen companies have filed plans with the regulator to raise funds from investors this year, including HDFC Asset Management Co. and major government-owned firms such as RITES, a railway consulting firm.

New Delhi has long depended on share sales in state-owned companies to help bridge the gap between its revenue and expenses. Of the 36 companies that offered shares for the first-time last year, five were state-owned, according to Prime Database, a New-Delhi based firm that tracks the Indian primary capital market.

Together, the three dozen companies, including New India Assurance and General Insurance Corp, as well as privately owned Avenue Supermarts and HDFC Standard Life Insurance, raised $10.3 billion from the primary market, a decade high, as demand from investors surged.

Key Restriction Lifted

India's central bank said it is withdrawing a restriction that limited foreign investors to only investing in government and corporate bonds with tenures of three years or more, a move that could bolster the domestic bond market.

The decision by the Reserve Bank of India, announced late on Friday, came close on the heels of weak investor interest in two recent auctions that led to a spike in sovereign debt yields.

At Thursday's auction of a 7.37% 2023 bond, the RBI was only able to sell about 430 million rupees ($6.45 million) out of the 30 billion on offer into the market, with the remainder having to be bought by primary dealers.


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