• Overvaluations and geopolitical concerns see cross-border market decline overall
  • Global exchanges jockeying for position in competitive environment for listings
  • November Alibaba listing in Hong Kong and Saudi Aramco's IPO on the Tadawul improves an otherwise sluggish year for capital raising 

Total IPO activity globally fell by 20% to 1,242 and capital raised fell 8% to USD 206.1 billion. Domestic IPO activity generally bucked the overall downward trend with total capital raised up by 4% to USD 167.4 billion, although the total number of domestic IPOs dropped by 20% to 1,048. Both the US and China saw strong domestic activity with several marquee deals. Geopolitical uncertainties, particularly in major financial markets, such as the US, UK and Hong Kong, dampened IPO activity and left investors waiting on the sidelines, hoping for resolution to trade disputes and political uncertainty.

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

"It has been an interesting year for the global capital markets as unexpected issues, both in the market and politically, have significantly impacted upon activity and investor sentiment. While we entered 2019 on an optimistic note, underperformance of a number of larger listings coupled with heightened political issues saw a more muted end to the year than anticipated. Despite these macro-environment factors, we saw some of the largest IPOs of all time, with issuers braving the elements to go public and raise capital ahead of what is expected to be a downturn in the global markets in 2020."

These and other findings are published today in the Cross-Border IPO Index 2019.

Cross-Border IPO Activity Slows

2019 overall has been a year of uncertainty in many jurisdictions. Cross-border deal value dropped by 35% year over year to USD 41 billion, while volume dropped by 17% to 197 deals. The Alibaba listing saw Retail claim the top spot for capital raising by industry, without which Financials would have retained the title – instead coming in second and followed by Healthcare and Consumer Products and Services. Financials did claim top place for value overall, followed by High Technology, Energy and Power, and Retail. 

Many listings were delayed or cancelled with most citing poor investor demand and low pricing as the biggest factors in their deferrals. Some of the largest cancelled listings this year included GFL Environmental (which had hoped to raise over USD 2 billion), Homeplus K-REIT, ReAssure, Latitude Financial, Endeavor, Virgin Trains USA and Vine Resources. 

One notable listing that was rumoured to list earlier in the year but potentially delayed by political unrest or price volatility in Hong Kong until late November, was Alibaba, which listed on November 25, raising USD 11.2 billion. Two other large listings, Budweiser's (USD 5 billion) and ESR's (USD 1.6 billion) listings, which were aborted earlier in the year, also relaunched and listed in the fourth quarter. Even without the Alibaba listing, Hong Kong was the leading destination for cross-border IPOs, both in terms of value and volume, but the listing was a shot in the arm for the Hong Kong exchange, where overall value and volume is down significantly from 2018, with a drop of 7% in value and 28% in volume.

Nasdaq was in second position behind Hong Kong for the leading cross-border IPO destination with USD 5.4 billion raised from 51 IPOs. 

EMEA saw a 71% drop in cross-border IPO activity with just 10 IPOs raising USD 4.7 billion.

The Cross-Border IPO Index 2019 is down by 18% to 19.5, reflecting the major decline in the number of listings and amount raised outside issuers' home jurisdictions.

IPO graph on transparent background

Regional Insights

North America
In the US, domestic IPO deal value moved to USD 58.1 billion in 2019 from USD 44.3 billion in 2018, a 31% increase that was driven largely by a number of high-value deals. In fact, all mega IPOs – raising over USD 1 billion – were domestic, and led by Uber’s USD 8.1 billion offering. Several of these deals had been in the pipeline for some time, and some observers noted that many came to market in 2019 to take advantage of favorable conditions that could change due to the US presidential election in 2020.

Despite the positive movement domestically, the big story in the US was the overvaluation of a number of pre-profit tech unicorns, whose subdued performance post-IPO led to investors to look cautiously at similar listings. This effect was most notable with the fall of WeWork’s highly anticipated offering – which added weight to the question of whether the private market valuations are a good indicator of strong IPO performance.

The Cross-Border IPO Index 2019 score for North America has fallen by 29% to 20.2, which is close to the global weighted average of 19.5 for 2019.

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

"We started the year with high expectations for a number of planned tech unicorn IPOs with possible record valuations. While a number of these unicorns completed their IPOs, several have seen significant price declines due to investor concern with their business models or path and timing to future profitability.  As a result, we have seen a number of companies delay their IPOs in order to streamline and focus their operations, reduce costs and attempt to forge a path to profitability. 

"Despite this, domestic capital raising in North America hit its highest level since 2014 and we expect to see the region continue to buck the global trend well into Q1 2020 as issuers look to list ahead of the 2020 elections."

Asia Pacific
In Asia Pacific, IPO activity has fallen significantly in 2019 compared to 2018’s stellar performance, which was mostly driven by an uptick in high-value Chinese cross-border deals into Hong Kong. Both the amount of capital raised and the number of IPOs overall fell to USD 90.4 billion from 776 listings, a drop from USD 109 billion and 927 listings in 2018. 

Chinese issuers led the way with 260 IPOs, 179 of which were domestic, followed by South Korea with 92 IPOs, all domestic; Japan with 90 IPOs, 89 of which were domestic; and India with 63 IPOs, all domestic. Financials was the leading sector, raising USD 16.3 billion. In addition, capital raised by High Technology increased by 12% over 2018 and Retail showed a 64% increase in capital raising year-on-year, due to the Alibaba offering.

There were a number of examples in Asia Pacific of new approaches from exchanges to lure companies to list in the region. For example, China launched the Science and Technology Innovation Board or STAR market, which was designed to encourage domestic tech companies in particular, to list locally. There were 47 listings on STAR in 2019, raising over USD 9.5 billion, as the exchange got off to a strong start. It is worth noting that not only did the number of Chinese IPOs into the US decline, domestic tech listings showed an increase of 19%.

In addition, June saw the launch of the London/Shanghai Connect – a stock exchange trading link that permits global investors to access shares in Chinese companies and Chinese investors to buy stock on the LSE. This was seen as a boon for both markets and a particularly innovative policy change from China, who have been making radical changes to attract more offerings to its equity markets. 

The November Alibaba "homecoming" listing in Hong Kong (after Xiaomi and Meituan) is a showcase of attraction that the Hong Kong Stock Exchange is able to get from unicorns, since its regulatory changes in April 2018 to encourage innovative and biotech company listings. 

The Asia Pacific Cross-Border IPO Index 2019 fell by 7% to 24.5.

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

"Uncertainty will always influence the markets, with few major financial centers escaping unscathed this year. While the disturbances in Hong Kong did hamper activity to a degree, performance remained relatively stable – as the infrastructure and investor base was still reliably there for issuers. Alibaba is a good example of this.

Going forward, we are set to see the ‘battle of the exchanges’ heat up, with recent regulation changes throughout the wider Asia Pacific region, coupled with the launch of the STAR market already luring listings away from, or at least providing issuers with more options in addition to, traditional venues such as Nasdaq and NYSE."

EMEA
Although the Saudi Aramco IPO is set to boost capital raising in EMEA, Brexit and weak economic activity across the Eurozone resulted in a slow IPO market overall.

Volume dropped by 46% to 113 IPOs and value remained static at USD 45.6 billion, helped by the 10 mega IPOs in the region. Most of the listings were domestic, leading the Cross-Border IPO Index to fall 36% to 10.8, the lowest of all the regions.

While the Aramco listing made up 50% of domestic capital raising, there were eight other domestic mega deals in the region – with London and Frankfurt proving popular for larger listings, and Saudi Arabia's Tadawul seeing the first truly international offering with Arabian Centre's Rule 144A IPO. Italy’s stock exchange was another bright spot in an otherwise muted landscape, with a 50% increase in IPOs.

The low number of cross-border listings hit the region hard with activity 71% lower than 2018.

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

"While Brexit continued to pummel cross-border activity in the region, there were pockets of success among domestic activity – with a number of exchanges including London, Riyadh, Frankfurt and Italy playing host to billion dollar listings.

"We are finally set to see the debut offering from Aramco, which is expected to rocket the Tadawul to the top of the board. It’s been a real rollercoaster for the EMEA markets of late, but we can expect to see big things in 2021, as ongoing political and economic issues are finally put to bed, releasing pent-up demand."

Latin America
Widespread political unrest in the region dampened IPO markets in both value and volume. A total of USD 3.5 billion was raised during 2019, down 33% from 2018, and deal volume fell by 30% to seven. All listings were domestic with Brazil and Chile seeing all of the activity in the region. 

There were five IPOs in Brazil, an increase from three in 2018 - said to be driven by the pension reforms that were passed by Brazil’s senate in October. In fact, two of these offerings were listed the very day the pension reforms were passed. In Chile, there was increased activity in the first half of the year followed by a slowdown due to political and civil unrest in the second half of the year.

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

"Despite the decline in numbers and heightened economic and political events affecting much of the region, countries such as Brazil, Colombia and Peru are holding their own at a macro level – with companies that continue to perform well, undeterred by market issues.

"Overall, there has been a notable improvement in the way business is being conducted over the past few years – which we can expect to have a positive impact on future economic growth.”

Stock Exchanges up their Game

Even with more listing venue options than ever for issuers, the US and China remain the strongest players with Hong Kong, Nasdaq and the NYSE leading in capital raising globally. Nasdaq was the most active exchange in 2019 with 183 issues. The Alibaba listing was responsible for Hong Kong’s retention at the top of the board for value.

Shanghai’s STAR Market boosted China’s performance, raising over USD 9.5 billion, which accounted for around 30% of the capital raised in China in 2019, and potentially accounting for the decline in Chinese issuers in the US and the increase of Chinese domestic IPOs.

Although London is still a top five cross-border listing destination, following a number of delayed deals it only saw four cross-border listings in 2019, down from 16 in 2018. Australia increased its cross-border capital raising by 432%, largely due to the USD 631 million SPAC IPO from KKR Credit Income Fund. Bright spots included domestic activity in Italy with increases in IPO value and volume, as the quantitative easing by the European Central Bank made an impact, coupled with a change in leadership in September, as well as the growth in activity in Saudi Arabia's Tadawul.

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