Geopolitical tensions, high interest rates and bank crises are acting as a brake on the world’s IPO market

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• The value of global flotations in the first quarter of 2023 drops by more than a half: 61 percent reduction to USD 21.5 billion – lowest level for three years
• The number of new issues reduced by 8 percent to 299
• Investors increase their focus on sustainable business models

Zurich, 30 March 2023 - Companies everywhere in the world are postponing their stock market plans and hope for better conditions: A total of 299 companies floated in 1Q 2023 – 8 percent fewer than in the same quarter of last year that was impacted by the war in Ukraine.

And because there were significantly fewer major flotations on the world’s stock exchanges, the value of the issues slumped by as much as 61 percent from USD 54.6 to 21.5 billion, the lowest level since 1Q 2019 when the value of flotations totaled USD 15.1 billion. The number of flotations valued over the one billion mark dropped from seven in the corresponding quarter of the previous year to just one.

Value of new issues fall in China and Europe

The Chines stock exchanges were the ones hit hardest by the decline in new issue activity: Compared with the first quarter of last year, the value of flotations in China plunged by 66 percent from USD 30.1 to 10.3 billion. The number of flotations dropped less markedly, falling by 11 percent from 97 to 86. In Europe, the money raised by new issues declined by 26 percent to USD 2.1 billion, and the number of IPOs dipped by 47 percent to 27.

US stock market holds its ground - energy companies in demand

The USA was the only major stock market that demonstrated increasing IPO activity, although at a continuing low level. The number of IPOs climbed by 29 percent to 31, and the value of issues rose by six percent to USD 2.5 billion.

Out of the global total of USD 21.5 billion raised by new issues, more than a quarter, USD 5.9 billion, went to energy companies even though this sector accounted for only 18 (6 percent) of the 299 transactions. The largest flotation of the current year was an energy IPO. The carve-out of the gas interests of the UAE’s Adnoc oil group generated USD 2.5 billion. Four of the ten largest flotations in 1Q were energy companies.

Sustainable companies and two GDRs on the SIX

From the Swiss standpoint, investors are increasingly concentrating on sustainable business models. According to Tobias Meyer, Head of Transaction Accounting and IPO Services at EY in Switzerland, this is a trend that was already evident last year and is linked to investors’ increased focus on clearly shaped ESG objectives.

The first quarter of 2023 saw no IPOs in the true sense of the word on the SIS Swiss Exchange, but once again there were two listings of GDRs (Global Depository Receipts). Two Chinese companies, the Zhejiang HangKe Technology Incorporated Company and the Fangda Carbon New Material Co, now have their depository receipts listed on the SIX Swiss Exchange, thus raising approximately 338 million Francs.

These are the findings of the current IPO barometer published by auditing and consulting firm EY.

Companies take up a waiting position

“We continue to see a significant level of reluctance on the part of potential flotation candidates” stated Tobias Meyer, Head of Transaction Accounting and IPO Services at EY in Switzerland. Even the relatively high level of share prices up to the middle of March failed to influence this attitude. The general economic and political ramifications plus the very recent turbulence in the banking sector continue to muddy the water, as can also be seen in the sharp increase in volatility and the falls in stock market prices.

However, Meyer anticipates that the overall economic situation could improve during the course of the current year. “The Chinese economy is recovering after the pandemic, the US economy is on a steep upward path - both of these will also benefit European companies. The Swiss economy, too, is basically performing well”. In his opinion the decisive factor is whether or not calm returns to the finance sector and the macro-economic situation shows an improvement.

Cautious outlook for 2023 – restraint among investors

Against the backdrop of the very recent instability in the banking sector investors remain cautious for the time being and continue to take a selective approach. The EY IPO experts are also observing that in the present environment investors are also hoping for major concessions leading to lower valuations.

However, Meyer feels that it is likely that any improvement will also be curbed by the war in Ukraine and the interest rate policy of central banks, “Potential further increases in interest rates will also impact on the stock markets and therefore also on the valuations of IPO candidates.”

A likely step in the right direction will be increased activity in the Chinese IPO market as the year goes by. The pipeline of flotation candidates in China currently numbers almost 800 companies, of which more than 10 mega-flotations are expected.

The EY IPO experts judge the European IPO market to be cautiously confident, “The pipeline is robust and growing” says Tobias Meyer. Because of the already lengthy period of difficult market conditions, the IPO pipeline has filled during the past year, and this trend is also continuing in 1Q 2023. “We are seeing IPO candidates working to ensure that they are “IPO ready” so that they are properly prepared when the right moment comes.

Technology companies aspire to the stock market

The most new issues in the first quarter were recorded in the technology (62) and industry (54) sectors, followed by the commodities sector (49). The highest value of flotations, after the energy sector, was to be found in the industrial segment with USD 4.6 billion.

The largest transactions in the first quarter were the flotations of ADNOC Gas (USD 2.5 billion), the American manufacturer of solar energy equipment Nextracker and the Chinese Lithium supplier Hunan Yuneng New Energy Battery Material, the last two raising USD 734 million and 663 million respectively.

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