Daily Management Review

Slow 2019 Global ECM Market Propped By Aramco And Alibaba Listings


Slow 2019 Global ECM Market Propped By Aramco And Alibaba Listings
An otherwise a slow year for equity capital markets (ECM) for 2019 was saved by the giant initial public offerings from Saudi Aramco and Alibaba. The year saw a number of high profile IPOs being shelved – including the WeWork IPO in the United States, and a drop in price of some of the IPOs launched this year.
According to data from Refinitiv, there was a 4.7 per cent drop in funds generated from the equity capital markets (ECM) at $659 billion in 2019. However this figure would not have been reached but for the huge IPOs of the Saudi Arabian oil giant Saudi Aramco – at record-breaking $25.6 billion, and the secondary listing in Hong Kong by Chinese e-commerce giant Alibaba – with $13.5 billion deal.
While the Aramco IPO accounted for 15% of global IPO volumes, the two deals combined made up about 6% of the total raised, money raised from the ECM market.
“Aramco fits the category of large and differentiated deals for which there is an audience but equally it is such a unique asset and a unique situation that it is difficult to read across to other situations,” said Gareth McCartney, head of Europe Middle East and Africa (EMEA) ECM syndicate at UBS.
The highest profile IPO failure this year was that of the US office-sharing tech firm WeWork. The company now owned by the Japanese investing conglomerate SoftBank was forced to withdraw its planned IPO earlier in the year after a dramatic drop in its valuation from about $47 billion in a private fundraising round in January to as low as $10-$12 billion as assessed by potential investors prior to the IPO launch.
Reassure — the UK arm of reinsurance group Swiss Re — and Italian luxury yacht maker Ferretti were the other notable firms that shelved their planned IPOs.
The indications that investors were becoming more conservative about valuations for loss-making companies was evident from the significant drop of share prices performance of the newly listed tech firms, said Kirstin DeClark, co-head of U.S. equity capital markets at Barclays.
“The pendulum has swung much more towards discipline. Companies don’t need to be profitable but there is much greater focus on the unit economics of a business,” she said, referring to the underlying profitably of a company’s core business.
A weakening global economy and political volatility was reflected in the cancellations. The anti-government protests in Hong Kong also impacted the Asian deals.
“If uncertainty created by the protests is prolonged, then it may have an impact on the decision to list in the longer term,” said Janney Chong, equity capital market partner at law firm RPC.
There was almost a 20 per cent drop in the collection of proceeds from Asia Pacific IPOs at $64.6 billion equivalent. However, regional volumes were up 3.2 per cent at $230.8 billion because of the Alibaba listing meant regional volumes were up 3.2% at $230.8 billion.
A 43.4 per cent drop year on year was recorded for IPOs in Europe at just $23.8 billion – the lowest in terms of volume in seven years.
The only major region to top last year’s IPO volumes was the United States.