The impact of the global economic downturn is becoming increasingly evident in all areas. According to recent statistics from Bloomberg, companies on the stock market have raised only $19.7 billion through IPOs since the beginning of the year. This figure is 70% lower than the same period in 2022 and is the lowest level since 2019. Capital raising activities from IPOs have begun to show signs of slowing down since mid-2022 when inflation increased and central banks simultaneously raised interest rates.
Entering early 2023, the global stock market has recovered somewhat thanks to the optimistic signal from China's reopening after a long period of applying Zero Covid policy. Along with that, the Fed has shown signs of cooling down in its interest rate hike momentum.
The amount of capital raised from IPOs has decreased by 70% compared to the same period in 2022, showing that the impact of the existing economic recession is becoming more and more evident. (Photo TL)
This move by the Fed was only made more evident when the US banking sector encountered difficulties with the collapse of several banks in the US. At the same time, the risk of bankruptcy of the Swiss bank - Credit Suisse also forced the Fed to review and reconsider its interest rate hike roadmap in 2023.
"Interest rates are the number one issue right now and there is a debate around how long the tightening will last, what direction it will go in and how fast it will go in," said Udhay Furtado, Citigroup's head of Asia Pacific .
Uncertainty and unpredictability in economic conditions have made it difficult for IPOs to raise the amount of capital they hoped for. The volatility has been further exacerbated by the collapse of Silicon Valley Bank (SVB) and the troubles of U.S. banks. There are signs that the troubles in the banking sector are having a major impact on companies’ IPO plans.
For example, German bank Oldenburgische Landesbank AG had to suspend its IPO plans scheduled for May because investors were concerned about the health of the global banking system.
"There's still a lot of uncertainty about the global economy heading into the end of the year, so I think that's going to be a bit of a worry for investors," said Stephanie Niven, portfolio manager at Ninety One. "It's a bit of a risk to invest in companies you don't understand at this time."
Still, there are signs of a recovery in fundraising, with secondary share offerings by listed companies expected to raise $76 billion in 2023, up 48% from the previous year. That included a major transaction involving Japan Post Bank, which raised 1.3 trillion yen ($9.9 billion) in the largest share offering in nearly two years.
In addition, companies have also gradually shifted to raising capital with convertible bonds. Typically, German food delivery company Delivery Hero SE and video entertainment company iQIYI have both issued convertible bonds. Data from Bloomberg shows that about $6.4 billion in convertible bonds were raised globally in the first three months of this year.
Convertible bond financing appears to have been largely unaffected by the collapse of SVB last month. "We remain cautiously optimistic about the outlook for issuance following a series of credit shocks to the market," said Lawrence Jamieson, head of capital markets at Barclays. "What we have seen over the past few days suggests that the market is moving past various risks. If this volatility eases, it could allow capital markets to stabilise."
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