Floats that defied Covid
THE year of Covid-19 and the worst ever global shock in peacetime might not seem the best time for company floats. The euphoric greeting for Airbnb’s initial public offering (IPO), driving the value up to more than $100bn at one stage, says either how mad tech valuations have become or reflects how the pandemic has changed the world.
Even if it turns out that Airbnb is overhyped, there is no escaping the fact that coronavirus has induced established corporations to turn business models on their head. As share-buyers were driving up the holiday letting website’s value, Walt Disney was holding an investor day in which the film company ‘shattered’ (their word not mine) previous guidance by revealing that, from a standing start this year, its streaming service now has 127m paid subscribers and is targeting 350m by 2024.
What makes the 2020 IPO boom so extraordinary are the circumstances.
As the potential damage of the pandemic came into view in March, markets went into freefall and central banks took part in the biggest rescue operation of all time, pumping trillions into the financial system as a crisis that began in bond markets switched to equities. It looked as if it would be the post-financial crisis bear market all over again. Instead, it has been a record-breaking year for capital raising with data group Refinitiv reporting an astonishing £2.8 trillion of new capital (debt and equity) raised by non-financial groups over the year.
Some of this has been in the shape of rescue ‘rights’ issues such as those for RollsRoyce, which put together £5bn of new funding, some for expansion, such as nearly £1bn raised by Whitbread and the £3.9bn of new shares issued by Tesla, as well as IPOs.
Political anxiety about China tightening its grip on Hong Kong made no difference to IPOs there.
The Chinese pharmacy chain JD Health joined the ‘red chip’ stocks in Hong Kong with a £2.7bn float, although the biggest IPO of all, the £27bn spin-off of Jack Ma’s Ant Financial, bewilderingly was halted in its tracks by Beijing regulators. Nevertheless, Shanghai gave Hong Kong and the tech stock favourite Nasdaq a run for their money with £48.5bn of new listings.
There was also innovation in debt markets with green bonds all the rage and Chinese companies adopting perpetual bonds which may never be redeemed but pay interest as far as the eye can see.
Broadly speaking, the fund raisings fell into two categories: new players such as UK beauty ecommerce site The Hut Group and the recovery funding received by the likes of cruise liner Carnival.
Among the reasons why there is so much demand for stocks on public markets, and why private equity players have been so bold, are the massive sums pumped into markets by the Bank of England, US Federal Reserve and other central banks. Individual savers have seen their bank accounts swell, and as the Bank of England’s chief economist Andy Haldane has noted there is a wall of £100bn waiting to be spent.
The assumption is that this consists of pent-up consumption, but as higher income savers look for better yields and returns, share markets look likely to benefit.
The buoyancy of IPOs means that investment banks have a chance to make a difference with Richard Gnodde of Goldman Sachs laying down new rules about diversity. Similarly, asset managers are becoming increasingly picky about climate change. Maybe we are at the start of an age of a more moral capitalism.
Brave new world
THE debt fuelled £29bn merger between Liberty Global- owned Virgin Media and Telefonica- controlled O2 always looked likely to meet its Waterloo in Brussels, which has fought a valiant battle against reducing the number of players in the telecoms.
But with Britain out of the EU door, the Competition and Markets Authority (CMA) now takes centre stage.
Among other things, the CMA has concerns that the Virgin deal specifically will lead to a loss of competition in the provision of wholesale mobile services resulting in higher prices for end consumers.
What the City’s army of competition lawyers and advisers may have failed to notice is the CMA’s big data unit.
It now has dozens of scientists deploying AI, auction and gaming techniques to crunch market data and come up with answers to complex issues about market dominance and pricing power in record time.
Watch out.