Spanish IPO Market Latest Victim of Political Impasse

  • Firms in Spain had worst drops in week after listing in 2016
  • Cortefiel and Volotea are among those that have delayed IPOs

Spain’s political impasse has been weighing on its stocks, but the corner of the market that’s suffered the most is the one for newly listed companies.

After being last year’s market darlings, Spanish firms going public have turned into the biggest losers among European peers this year. They’ve had the worst drops in the week following their initial public offerings, and raised just a fifth as much money as they did by this time in 2015. Only three companies have listed in Madrid so far, and at least three postponed plans to do so.

The political turmoil that since an inconclusive December election has left the country without a government is reversing the fortunes of firms aspiring to go public, with investors and companies alike waiting around for clarity. That, compounded by company-specific issues such as high debt levels and large investors exiting positions, has worsened the outlook for IPOs, according to INTL FCStone Financial’s Jacob Rappaport.

“Spain is a victim of poor market conditions: fewer IPOs to compare with against the rest of Europe and the rest of the world, and a poor political climate,” said Rappaport, head of equity capital markets at INTL FCStone Financial in Winter Park, Florida. “It’s a tough market right now and there’s no certainty on which way the government will go.”

Shares of Spanish companies that listed in 2016 have declined 12 percent in their first week, versus a jump of 27 percent as of May 25 last year, according to data compiled by Bloomberg based on weighted averages. The 2015 performance beat all western-European markets except Finland. The country’s benchmark IBEX 35 Index has lost 6.1 percent since the December vote, versus a 3.5 percent drop for the Stoxx Europe 600 Index. Repeat elections are due June 26.

Spanish firms sold $1.5 billion of shares in 2016, down from $8.3 billion raised by twice as many firms through May 25 of last year. While the decline is bigger in Spain, the size of offerings has shrunk 74 percent to $8.2 billion across the continent.

While market conditions for IPOs haven’t been favorable, companies also have troubles of their own. Restaurant operator Telepizza Group SA and amusement-park manager Parques Reunidos Servicios Centrales SA used their recent offerings mainly to reduce debt rather than invest toward growth, said Carlos Ortega, a Madrid-based trader at Beka Finance Sociedad de Valores SA.

“It’s not a bad option, but investors are usually more interested in a company that’s going to make them money through growth or dividends,” Ortega said.

Some of Telepizza’s biggest shareholders sold the stock soon after the IPO, contributing to a 25 percent slide in the first week of trading, the second-worst performance in Europe. Parques Reunidos slid 8.6 percent in a comparable period, while the third Spanish IPO, information-technology company Global Dominion Access SA lost 1 percent.

Not all companies are deterred. Coca-Cola Iberian Partners SA is making its trading debut early next month, while Telefonica SA’s infrastructure division is said to be planning a share sale as soon as July as the parent company aims to lower its debt.

Equities will eventually benefit from an economy that’s forecast to expand in each of the three years through 2018, according to Alexandre Zaluski, who is responsible for equity capital market deal creation and structuring in Europe, the Middle East and Africa at Mizuho International Plc.

“People like to play the Spanish recovery,” Zaluski said by phone from London. “Spain has shown pretty good signs of improvement in the past couple of years relative to where it was five years ago.”

Still, the uncertainty wrought by political wrangling has claimed its victims. It was the main factor for clothing retailer Cortefiel SA, low-cost airline Volotea SL and lender Banco Mare Nostrum SA in delaying listings, according to Beka Finance’s Ortega.

“The political climate is very important right now for Spanish markets,” Ortega said. “We have many foreign clients waiting for elections to see whether they’ll invest in Spain, and it’s the same with companies. They’ll be on hold until we get more clarity.”

(Corrects fourth paragraph to say Rappaport is based in Winter Park not New York.)
Before it's here, it's on the Bloomberg Terminal.