July 1 (Bloomberg) -- Initial public offerings more than doubled in the second quarter as companies from Blackstone Group LP to Banco do Brasil SA sold businesses before a reversal in stock markets curbed some sales.
IPOs raised $42 billion in the period, compared with $20 billion in the first quarter, led by Banco do Brasil’s sale of its insurance unit for $5.7 billion, the biggest offering of the year, according to data compiled by Bloomberg. The number of deals increased 18 percent to 239.
More than half of the IPOs in the quarter took place before global markets capped their rallies in May, with the Standard & Poor’s 500 Index hitting a record, Japan’s Topix Index climbing to almost a five-year high and the Stoxx Europe 600 Index completing its longest streak of monthly advances since 1997. While some companies going public after markets turned were forced to lower prices, concern about the economy isn’t likely to diminish demand for IPOs, bankers said.
“As a big-picture theme, deals are still getting done,” said Evan Damast, global head of equity syndicate at Morgan Stanley in New York. “The economic fundamentals aren’t any different than they were a few days ago, and investors aren’t shying away from IPOs because of choppiness in the market.”
Japan’s Suntory Holdings Ltd. proceeded with the IPO of its non-alcoholic drinks unit last week, pricing shares near the low end of the range, while HD Supply Holdings Inc. and CDW Corp., two private equity-backed U.S. companies, also pushed ahead with offerings, pricing below their original targets. Votorantim Cimentos SA, Brazil’s biggest cement producer, rescheduled a planned $3.7 billion IPO for September.
“People are essentially factoring this in as a valuation correction, not a market correction,” said Scott Cutler, head of global listings at NYSE Euronext, the owner of the New York Stock Exchange. If the recent stock selloff were a big concern, it “typically would shut an IPO window.”
The U.S. Federal Reserve said June 19 that it may start to moderate its bond purchases, known as quantitative easing, if the U.S. economy and labor market improve as forecast, prompting the S&P 500’s biggest drop since November 2011. China’s stocks fell to a four-year low last week as the central bank’s pledge to stabilize money markets failed to ease concern that elevated funding costs will curb economic growth.
“In the near term, market volatility will stay and people will need to come to terms with the impact of the tapering of quantitative easing in the next 6-12 months and a rising interest rate environment,” said Ian Long, head of China equity capital markets at Deutsche Bank AG. “Deals will come back in the second half as long as the markets stabilize.”
The magnitude of daily price moves for the S&P 500, either up or down, rose to 0.73 percent in the second quarter from 0.48 percent in the first three months of the year, according to data compiled by Bloomberg. Price swings fell in the first quarter from an average of 1.08 percent in the previous five years, the biggest decline in volatility since the Great Depression.
Alibaba Group Holding Ltd., the world’s biggest e-commerce platform, may go public this year in New York or Hong Kong raising HK$100 billion ($12.9 billion), Ernst & Young LLP said in a report last week. In Europe, the U.K.’s Royal Mail Group Ltd. and Milan-based clothier Moncler are planning offerings, while Neiman Marcus Inc., the operator of the U.S. luxury department-store chain, filed for an IPO in New York last week.
Bank of Shanghai Co. and China Everbright Bank Co. are planning initial share sales for about $2 billion each in Hong Kong, people familiar said earlier this year.
“We remain very bullish on equity issuance for the rest of the year,” said Joe Castle, global head of equity syndicate at Barclays Plc in New York. “The market has been building momentum that will play out in the back half of the year given that the market remains stable.”
U.S. IPOs raised $13.3 billion in the three months through June, up 57 percent from the first quarter, data compiled by Bloomberg show. U.S. offerings would have almost doubled from a year earlier if not for Facebook’s record $16 billion IPO in May 2012. The volume of Europe deals quadrupled to $5.8 billion from the year-earlier period.
Companies raised more than $14 billion in Asia in the quarter, compared with about $3 billion in the first three months of the year, the least since 2009, as billion-dollar deals from Sinopec Engineering Group Co. and China Galaxy Securities Co. in Hong Kong offset an absence of share sales in China. There were no IPOs in mainland China as regulators continue to review listing rules before they allow share sales.
As a result, there’s a backlog of China deals, according to Maria Pinelli, global vice chair of strategic growth markets at Ernst & Young LLP, who forecasts there are more than 800 companies ready to go public in mainland China. IPOs may resume in the second half, Ernst & Young said last week.
While Asia offerings rebounded in the three months through June, China’s cash crunch will have an immediate effect on deals in the region, according to Kenny Tang, general manager of AMTD Financial Planning Ltd. in Hong Kong, a financial advisory unit of Cheung Kong Holdings Ltd.
“Companies have been forced to delay or downsize their IPOs, as the liquidity squeeze in China affects market sentiment and lowers the valuations of Chinese stocks,” Tang said.
Companies delayed at least $1 billion of initial share sales in Hong Kong in June, including Nexteer Automotive Group Ltd., the U.S. auto-parts maker controlled by China’s biggest aerospace company, which postponed a $325 million IPO. New World Development Co. postponed a $700 million IPO of its hotels in Hong Kong, people with knowledge of the matter said on June 21.
Still, the IPO market provided gains to buyers during the second quarter, as shares of newly public companies rose by an average of about 8.2 percent, even after markets tumbled, according to data compiled by Bloomberg.
While “there are still some unsettled aspects of the global economies,” according to Mark Hantho, global head of equity capital markets at Deutsche Bank AG in New York, “the one thing that’s clear is that we’re in a much better place year over year.”
To contact the editor responsible for this story: Jeffrey McCracken at email@example.com