Global filings for initial public offerings are accelerating to the fastest pace since 2007 just as Greece’s debt crisis and China’s rising inflation drag down global stock markets.
At least 720 companies including Groupon Inc. and Beijing Jingneng Clean Energy Co. have announced plans this quarter to seek $67 billion in IPOs, according to data compiled by Bloomberg. That’s the largest number of deals in a quarter since 794 IPOs were announced during the final three months of 2007, the data show.
While the MSCI World (MXWO) Index’s rally to an almost three-year high in May spurred companies to register for initial share sales, the benchmark has since retreated 7.8 percent. More European deals have been pulled this year than since at least 2006 amid concern that Greece will default. All but five of the biggest IPOs in Hong Kong have declined since their debut, with Chinese inflation rising to its highest since 2008, according to data compiled by Bloomberg.
“Despite significant global activity, the market sentiment for deals now is tougher than what we’ve seen in a while,” said Frank Maturo, co-head of Americas cash equity capital markets at Bank of America Corp. in New York. “We are not seeing the IPO performance that the buy side would like and that is making the IPO market more challenging.”
In the U.S. this year, stocks have risen less than 3 percent on average following an IPO, tempered by growing signs the recovery from the worst recession since the Great Depression is deteriorating. A jump in U.S.-listed Internet stocks wasn’t enough to buoy the market, even after professional-networking website LinkedIn Corp. more than doubled in its first trading day and Yandex NV, Russia’s most popular search engine, surged 55 percent.
In western Europe, where new filings are at their highest since 2008, 22 deals have been withdrawn or postponed this year, the most since at least 2006, Bloomberg data show. Of the 69 IPOs that were completed in Europe this year, 36 trade below their initial prices.
The pulled sales would have raised as much as $9.4 billion, according to Bloomberg data. Cie. de Saint-Gobain SA, Europe’s biggest supplier of building materials, this month delayed an IPO of its Paris-based packaging unit, Verallia, which was seeking as much as $1.4 billion.
The drop reflects stock market declines in both regions. The benchmark Stoxx Europe 600 Index fell for an eighth straight week as of June 24, the longest losing streak since 1998, as Greece pushes ahead with budget cuts to avoid a debt default that would roil the region. Hong Kong’s Hang Seng Index declined for 5 straight weeks through June 17, the worst slump in 2 1/2 years amid the Chinese government’s efforts to tame the surge in consumer prices that pushed mainland inflation to 5.5 percent, the highest level since 2008.
“Market conditions for IPOs have been challenging” this year, said Viswas Raghavan, London-based head of international capital markets at JPMorgan Chase & Co. “Investors have found it difficult to make money from IPOs, and the market has significantly underperformed.”
In Asia, all but five of the 17 companies that started trading this year after raising more than $100 million in a Hong Kong IPO have declined from their offer price, Bloomberg data show. IPOs in mainland China this year have lost an average of about 5 percent in trading.
Luxury-fashion company Prada SpA, one of the most recent foreign companies to list in Hong Kong, has gained after pricing at the bottom of a narrowed range. Beijing Jingneng may raise as much as HK$4.9 billion ($629 million) in an IPO, according to a term sheet this month.
In the U.S., there was a backlog of 109 IPOs as of June 21, or companies that have made new or amended filings with the Securities and Exchange Commission within the last six months, according to Ipreo Holdings LLC, the New York-based provider of capital markets data and analysis. That’s the most since 2006.
Groupon, the biggest provider of online daily-deal coupons, filed June 2 to raise $750 million in an IPO. Zynga Inc., the biggest maker of games on Facebook Inc.’s website, may file for an IPO by the end of the month, according to a person familiar with the plans.
LinkedIn and Yandex have trimmed gains following their first-day surges. LinkedIn is up 70 percent through yesterday and Yandex is up 30 percent. Pandora Media Inc., the online- radio company, fell 24 percent in its second day of trading after an 8.9 percent climb. It has risen 3.3 percent to date.
“The overall market’s gotten more cautious,” said Wayne Wilbanks, chief investment officer at Wilbanks, Smith & Thomas in Norfolk, Virginia, which manages about $1.8 billion. LinkedIn’s recent retreat shows investors are becoming more disciplined about what they’ll pay for Internet stocks, he said.
U.S. IPOs are being shelved at a faster pace this quarter, the data show. More than half of this year’s 43 withdrawals or postponements have occurred since the beginning of April.
Federal Reserve officials have lowered their growth forecasts for this year and next and raised estimates for the unemployment rate. Consumer spending, which accounts for about 70 percent of the U.S. economy, unexpectedly stalled in May as employment prospects faded, prompting Americans to scale back purchases.
Any improvements to the economy may encourage companies to once again pursue share sales. While some companies make an initial filing with the intention of completing an IPO quickly, not all are likely to go public in 2011. A first filing is the beginning of an IPO process that in the U.S. sometimes takes more than a year before finally culminating in a share sale.
U.S. stocks rose yesterday, rebounding from three days of losses and reversing a worldwide slump. China Premier Wen Jiabao said last week efforts to stem inflation have worked, causing China stocks to rally the most in four months.
Greece’s creditors have made progress toward an agreement to roll over 70 percent of their holdings into longer-maturity debt. European Union officials vowed at a summit in Brussels to prevent a default in Greece as long as Prime Minister George Papandreou pushes through a package of budget cuts this week. Greek lawmakers are due to vote on 78 billion euros ($111 billion) of austerity measures this week.
“If the equity markets find price levels they can build from, I think interest in IPOs has a chance to be rekindled relatively quickly,” said Chris Whitman, London-based global co-head of equity capital markets at Deutsche Bank AG. “Right now, it’s clearly not the type of market that’s strongly IPO- friendly.”