Global equity issuance up from 2016, bankers see rise ahead
LONDON: Global equity raising rose by almost a fifth in 2017 and bankers expect issuance to increase further in 2018 as the improving global economy and buoyant stock markets drive larger flotations and rights issues to finance acquisitions.
Companies raised US$ 780.2 billion in equity in 2017, up 19 per cent from US$656.4 billion last year, Thomson Reuters Equity Capital Markets (ECM) data up to December 26 showed.
Global proceeds from initial public share offerings (IPOs) rose by 35 per cent to US$178.6 billion in 2017. However, overall issues and the global IPO market fell short of 2014 to 2015 cycle peaks.
European bank rights issues continued to dominate equity capital raising in 2017, with UniCredit, Deutsche Bank, Credit Suisse and Banco Santander collectively raising almost US$35 billion. The biggest 2017 IPO was Snap Inc in the US which raised US$3.9 billion in March.
“We expect volume to be higher in 2018 but the composition will probably be different. The cycle of balance sheet repair is coming to an end and instead we’re going to see larger IPOs, spin-offs and some rights issues to finance acquisitions,” said Craig Coben, head of global Equity Capital Markets (ECM) at Bank of America Merrill Lynch.
Among the big ticket issues, bankers continued to look to the potential listing of US tech unicorns – companies that have achieved a US$1 billion valuation without tapping the stock markets – such as Uber and Airbnb.
In Europe, a large rights issue to help Bayer fund its planned US$66 billion takeover of Monsanto was anticipated.
“There could be other geopolitical shocks but those things aside and assuming continued low volatility, we expect issuance to be higher next year,” Coben said.
Shrugging off tensions between the US and Russia and North Korea, as well as protracted conflicts in the Middle East, the CBOE Volatility Index, or VIX, continued to hover around all-time record lows at the end of 2017.
Buoyant commodity prices alongside a pullback in US bond yields and the dollar propelled world stocks to new record highs on Thursday, signalling the rally would likely extend into 2018.
Investment bankers also said they expected the return of emerging market issuance, highlighting Brazil, Turkey and Russia among resurgent markets.
Morgan Stanley rose to the top of the league table for global ECM issuance overall and global IPOs, despite JP Morgan coming top in Europe and Americas.
Growth in equity raising for British companies lagged behind their European counterparts in part because of worry over Britain’s future economic relationship with Europe.
British companies raised 2.5 per cent more equity in 2017 compared to 2016, while German companies, for example, more than doubled their issuance.
Against a backdrop of record highs for the main London index, a series of cancelled listings contributed to investor angst.
“Investors are approaching UK domestic businesses with a note of caution. But it’s a case-by-case issue,” said Ken Robins, head of ECM in Europe, Middle East and Africa at Citi.
“There is going to be scrutiny. But the UK is going to see multinational listings,” Suneel Hargunani, Citi’s head of syndicate ECM in the region, added. — Reuters