• The battle continues for Chinese cross-border listings, with Hong Kong regulation changes beginning to pay off
  • Pricing and performance concerns see a more conservative approach to pricing from issuers
  • Recent and ongoing geopolitical events cause stalled activity at the start of the year

Capital raising in global IPO markets fell by 37%, with volume dipping 34% in the first half of the year compared to the same period in 2018. A total of USD 69.8 billion was raised across 514 IPOs, which is the lowest for value and volume since 2016. The US Federal government shutdown, continuing trade tensions between the US and Beijing, the ongoing Brexit saga and the decline of mega IPOs all contributed to a slower market performance. With fewer IPOs in the market, competition amongst exchanges is growing, as some listing locations make strategic changes to entice public offerings. The introduction of China's Science and Technology Innovation Board looks set to shake up the market and challenge New York and Hong Kong for tech listings.   

Koen Vanhaerents, Baker McKenzie’s Head of Global Capital Markets, says:

"The global IPO market experienced quite a slow start to the year as significant political issues stifled activity, along with a change in investor sentiment towards risk – particularly among pre-revenue companies. While global activity experienced sharp declines, this is perhaps skewed slightly when compared to the stellar performance seen in the same period in 2018. With a strong pipeline, H2 2019 looks set to deliver a much more prosperous performance overall."  

Cross-Border IPO Activity Slows

Coming off the back of a buoyant 2018, global cross-border IPO activity faltered in the first half of 2019, with total value down 55% to USD 11.3 billion and volume down 16% with 85 listings recorded. The drop in capital raised by Chinese issuers accounted for much of the decline in value. Despite a fall in value of 62% compared to this time last year, China continues to deliver the high number of cross-border IPOs, raising over USD 8.8 billion in Hong Kong and the US. 

The Hong Kong Stock Exchange and Nasdaq came out on top as cross-border destinations, and the only exchanges to show an increase in activity, up 7% and 33% respectively.

Asia Pacific accounted for 66% of cross-border capital raising and 60% of cross-border listings. North American exchanges accounted for 31% of cross-border capital raising with USD 3.5 billion, albeit this was down 62% against the same period last year, when North America saw a surge in high-value cross-border activity.

There were only three cross-border deals in EMEA, with total cross-border capital raising in the region amounting to USD 305 million, down by 91% compared with last year. London saw a record low of one cross-border offering as Brexit's stranglehold on the market and economy continues, exacerbated by turmoil within the Conservative Party and Theresa May's subsequent step-down as Prime Minister. 

As a result we see the H1 2019 Cross-Border Index value decline to 18 from 19.8 in the same period in 2018, illustrating the small decline in proportion of cross- border IPOs, but remaining well above the lows of 2016 and 2017.   

IPO Index Chart

Financials and Tech sector dominant

Financials topped the tables for value and volume, raising USD 18.5 billion over 108 IPOs, but that performance was still down 29% and 24% respectively. High Technology came in second with 81 offerings raising USD 18.4 billion. With the exception of Materials, up 68% off the back of Avantor's USD 3.3 billion IPO, all sectors experienced a decline in capital raising in line with global activity declining.

Mega IPOs

The underperformance of some mega IPOs and the subsequent pricing and valuation concerns among investors prompted something of a 'wait-and-see' approach – as issuers held off listing in the early months for the market to settle into more favourable conditions. This is clear in the sharply declining number of billion dollar IPOs compared with last year, as companies struggled to find the right conditions to bring larger deals to market. 

A total of 10 mega IPOs were recorded in the first half of 2019 raising USD 24.3 billion. That is in contrast to the same period last year when 18 mega IPOs had been recorded raising USD 40 billion. 

Regional Perspective 

North America
The US Federal government shutdown and subsequent SEC backlog and delay in activity in the IPO market caused a significant decline in North American offerings in the first few months of 2019. What was expected to be a robust performance in the region with some highly anticipated mega listings, didn’t quite deliver. Activity did pick up, however, as the year progressed. Indeed, North America was the only region to record an increase in deal value, with a 13% climb in domestic value and a 7% jump in cross-border listings in the first half of 2019. 

In spite of the continued Sino-US trade war, there was considerable demand from Chinese issuers to list on US exchanges, with 16 Chinese companies raising over USD 2 billion on Nasdaq and the NYSE.

The appetite to float in North America is showing no signs of slowing down. Issuers are instead looking to current market and stock performances to gauge their debut offerings. When coupled with what is fast-becoming a more conservative approach to pricing, companies are pulling out all the stops to protect post-IPO performance.  

The underperformance of some highly anticipated listings in the markets has thrown up concerns around pricing and valuation of companies, particularly pre-revenue companies with no clear path to profitability. Subsequently, investor sentiment toward risk has shifted – compelling a re-evaluation of pricing structures among some of those set to debut.

Christopher Bartoli, Baker McKenzie’s Head of North America Capital Markets, says: 

"The US Federal government shutdown may have stifled activity in the first few months of the year, but this is by no means a reflection of appetite. While geopolitical and pricing concerns have impacted markets globally, the US is set to experience a burst of activity running right into the start of 2020. What we can expect to see though, is more conservative pricing among issuers in an attempt to safeguard IPO performances."

Asia Pacific
The legacy of 2018’s stellar performance in Asia Pacific, which was mostly driven by an uptick in high-value Chinese cross-border deals into Hong Kong, has cast a shadow over activity in the region in the first half of 2019. Both the amount of capital raised and the number of IPOs overall fell in the first six months of the year, down by 40% to USD 24.3 billion and 33% to 305. 

While cross-border value was down 41%, Asia delivered the same number of IPOs at 50 – showcasing the direct result of the drop in value of IPOs from China. When taking this into account, cross-border activity in Asia actually performed relatively well, surpassing capital raising in both 2016 and 2017.

Domestic activity was the main reason behind such a sharp drop, as some stock exchanges experienced unusual declines in listings. India saw a 70% fall in listings to only 35 IPOs from 115 in the same period last year. The Indian national elections in April was said to be behind this disruption to the market. There are, however, renewed hopes for the Indian market for the remainder of the year as Prime Minister Nerendra's re-election has reignited investor sentiment in the country.

Australia saw a 32% drop in listings this year as state and federal elections, the regulatory fallout of the Financial Services Royal Commission and underwhelming share price performances tested market confidence.

Japan was one of the few countries that increased activity in Asia, as investors enjoyed a stable economy, and the re-election of Shinzo Abe seen a boost in market confidence. All 37 Japanese listings were domestic.

Ivy Wong, Baker McKenzie’s Head of Asia Pacific Capital Markets, says:

"While there will always be an appetite to tap into foreign investor pools, China’s new Innovation Board is set to encourage more companies to list domestically and we could begin to see a real shake up in the market when it comes to Chinese IPOs – particularly given the positive sentiment towards Hong Kong’s regulation changes last year."

EMEA
The EMEA IPO market struggled during the first six months of 2019 due to uncertainties surrounding the UK’s exit from the European Union. Overall capital raised fell by 67% compared to the same period in 2018 to USD 9.2 billion while the number of IPOs fell by 61% to 47. Cross-border activity was even more profoundly impacted with only three listings in EMEA and only one of those on the London Stock Exchange. Domestic activity levels helped the London Stock Exchange to retain the top spot for overall capital raising at USD 2.7 billion from 12 listings. Seven of these listings were from the financials sector and raised almost USD 2 billion, the largest of which was Network International's USD 1.4 billion IPO. 

Second to London was Borsa Italiana with USD 2.3 billion from seven listings, boosted by the USD 2.2 billion Nexi SpA listing. SIX Swiss exchange pulled in USD 1.9 billion from two IPOs, with Stadler Rail's debut accounting for USD 1.3 billion of that.

Despite its sluggish performance, EMEA is proving to be the region of choice for FinTech listings, particularly in the payments field, as the age of digitization and cashless transactions continues to explode, fueling the need for innovation and technological growth. FinTech listings accounted for more than a third of capital raised and the largest listing was Nexi SpA's IPO.

Adam Farlow, Baker McKenzie's Head of EMEA Capital Markets, says:

"Europe’s market and economy continues to struggle under the weight of political volatility and a lack of clarity around Brexit, but all eyes look to October for more transparency and direction. We are hopeful that the market will subsequently settle and activity in London will recover. The demand is still there for access to the liquidity and exposure that comes with the London Stock Exchange."

Latin America
Latin American markets were also slow in the first half of the year, due to ongoing political and economic instability in a number of member countries. Capital raising fell by 95% to USD 243 million during the first six months of the year, with just two IPOs compared to seven during the same period last year. Grupo SBF SA raised over USD 173 million on the B3 exchange in Sao Paulo and Inmobiliaria Manquehue SA raised USD 69 million on the Santiago Stock Exchange. Mexico and Brazil had seen seven IPOs between them in the same period last year. The hangover of political scandals in Brazil and new left-wing leadership in Mexico has taken its toll in both areas, as Latin America experiences its lowest level of activity since 2014.

There was one listing out of Latin America, with Colombia's USD 100 million offering from Andina Acquisition on Nasdaq. The IPO was the first in the market since the US federal government shutdown, as the company sought to tap the international investor pool. 

Pablo Berckholtz, Baker McKenzie’s Latin America Head of Capital Markets, says:

"While activity is usually driven from Mexico, Brazil and Argentina, political issues and scandals have caused great tumult in these areas, with Argentina’s economy continuing to contract. We are, however, beginning to see threads of progress from other areas – Chile for example, where the government is making concerted efforts to drive its economic development, despite its own political instability."

Stock Exchanges up their Game

Looking at overall capital raising, US exchanges stormed ahead, buoyed by a strong domestic performance, with the NYSE seeing the largest amount of capital raised, totalling USD 20.1 billion, thanks in part to Uber’s listing of USD 8.1 billion. Nasdaq followed with USD 15.2 billion and Hong Kong came in third with USD 7.6 billion across 60 listings. Shanghai and Shenzhen pulled in USD 3.6 billion and USD 3.1 billion respectively.

The NYSE proved to be the listing venue of choice for high value IPOs, sitting fourth with 32 listings while topping the value tables. Japan made an unusual appearance in the top three with 37 listings, all domestic, as issuers enjoyed economic stability.

Hong Kong is the leading destination for cross-border IPOs, raising USD 7.2 billion from 44 companies based in China, Macau, Malaysia, Singapore and the US. Nasdaq came second with cross-border IPOs from 24 companies based in China, Israel, Singapore, France, Hong Kong, Cyprus and Colombia. 

While the competition between New York and Hong Kong is nothing new, the decline in the total number of IPOs is forcing listing locations to think more innovatively as they vie for positioning in a market of more exchanges and fewer offerings. 

Hong Kong's changes in April 2018 were the first to really shake up the market, as they relaxed their regulations in an attempt to encourage Chinese issuers, particularly biotech. A 26% increase in listings from Chinese companies, compared to a 7% increase in the US in the first half of 2019, suggests that Hong Kong's changes appear to be bearing fruit.

Losing Alibaba's USD 25 billion IPO to the US really highlighted the need for an update to listing requirements in China. With President Xi Jinping announcing the creation of a new Science and Innovation Board in an effort to make it easier for technology offerings to raise capital at home, there was much buzz about what this could mean for New York and Hong Kong exchanges. With companies quick on the uptake, disruption can already be seen among smaller companies. Qingdao Haier Biomedical Co, Sun Car Insurance Agency Co. and Certusnet Information and Technology Co all scrapped plans to list in Hong Kong within weeks of each other, opting instead to debut on Shanghai Stock Exchange. 

Transactional Powerhouse – Leading and Closing Three Deals a Day

We provide commercially focused, end-to-end legal advice to maximize deal certainty and secure the intended value of transactions. Our 2,500 lawyers combine money market sophistication with local market excellence. We lead on major transactions with expertise spanning banking and finance, capital markets, corporate finance, funds, M&A, private equity and projects. The combination of deep sector expertise, and our ability to work seamlessly across each of the countries where we operate, means we add unique value in shaping, negotiating and closing the deal. 

Explore Our Newsroom
See All News