6 minute read 24 Jun 2020
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How the easing of lockdowns has impacted IPO activity

By Paul Go

EY Global IPO Leader

Leads Chinese and multinational companies in client servicing domain. Heads Hong Kong real estate, hospitality and construction sector audit group.

Contributors
6 minute read 24 Jun 2020

Global IPO activity is beginning to increase, buoyed by economies emerging from lockdowns and extensive market liquidity.

After making a strong start to the year, the IPO market froze in March-April as the global public health crisis caused by COVID-19 triggered strict lockdowns across the world and caused stock markets to plummet. Official figures available so far indicate that economic activity in some countries contracted by as much as 20-30% in March and April compared with the beginning of the year.

However, as of late May and early June, indicators suggest that the slump may have started to ease as economies have begun to reopen gradually. Business and consumer confidence have stabilized, albeit at low levels, and massive government aid packages have fed through to firms and households.

Hand-in-hand with the early economic recovery, IPO activity also began to increase again, with a number of highly valued companies revealing plans to go public in the weeks and months ahead. However, IPO candidates continue to face an extended period of macroeconomic uncertainty, coupled with shifting sentiment in capital markets and ongoing concern over fresh coronavirus outbreaks around the world.

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1

Chapter 1

The global economy tries to reset

Businesses have begun to take the first steps towards resuming activity in the new normal.

Financial markets rebounded sooner and much more vigorously than might have been expected at the start of the pandemic, raising concerns that they had decoupled from economic fundamentals, which could in turn lead to another stock market rout before the end of the year.

Having dropped by over 30% between mid-February and late-March, the S&P 500 returned close to year-high levels in the first week of June. This was supported by fresh global liquidity spurred by close to zero or negative interest rates and renewed quantitative easing. In March-April alone, G7 central banks’ cumulative net asset purchases totalled about US$2.5t.

With equity prices back close to historically high levels and central banks providing ample liquidity, IPO activity picked up in late-May-June, coming off falls in April-May of 51% year on year in terms of the number of listings and 75% in terms of proceeds. Given the backlog of IPOs in the pipeline from earlier in the year, the outlook for the second half of 2020 and 2021 looks good.

However, much will depend on whether the recent stabilization can be maintained. A fall of 6% in the S&P 500 index amid a global retreat from equities on June 11th provided a stark reminder of the potential for renewed financial market turmoil, which could cause IPOs to be put on hold again.

Overall, the macroeconomic outlook remains grim. Until more effective coronavirus treatments and a vaccine are widely available, uncertainty is likely to persist amid concerns of a second wave of infections, which could be triggered by the reopening of economies.

The OECD’s latest Economic Outlook published in June forecasts that under a “single-hit” scenario world (in which further lockdowns are avoided), real GDP will contract by 6% in 2020, followed by growth of 5.2% in 2021. Under the same scenario, US output is expected to decline by 7.3% in 2020, making only a partial recovery in 2021 with expected growth of 4.1%.

Economic consequences

6%

expected rate of real GDP contraction, according to the OECD

A further source of uncertainty for cross-border IPO activity comes from the Holding Foreign Companies Accountable Act, approved by the US Senate on May 20th. The bill, which has yet to pass the House of Representatives, requires companies to certify that they are not owned or controlled by a foreign government, as well as to comply with audits by US regulators.

Adding to the inevitable existing geopolitical uncertainties in a US presidential election year, this potential change to US law and stock exchange regulations could deter foreign companies, especially Chinese firms, from going public in the US — and force some US listed companies to delist if they are not compliant. The impact is as yet unclear, however. Wall Street is likely to oppose the bill and affected companies may simply opt to list elsewhere, boosting IPO activity in other financial hubs.

Geopolitical uncertainties may affect cross-border IPOs, particularly between the US and China. But overall IPO activity is unlikely to be affected – rather, companies will simply opt to list in a financial hub without such complicated geopolitics.
Jon Shames
EY Global Geostrategic Business Group Leader

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2

Chapter 2

Key highlights from global IPO trends

COVID-19 pandemic slows global IPO activity in the first half of 2020.

The IPO outlook for the second half of 2020 has improved but potential listings remain vulnerable to renewed financial market volatility triggered by geopolitical tensions and a second wave of COVID-19.
Paul Go
EY Global IPO Leader

Due to the impact of COVID-19, global IPO activities slowed dramatically on both Americas and EMEIA exchanges between April and May 2020, compared with 2019, while Asia-Pacific recorded a slight decline.

As volatility levels subsided and sentiments stabilized, we saw a rebound in IPO activity across all three regions in June.

Overall, Q2 2020 saw a decline from Q2 2019 activities for all regions by deal numbers and for Americas and EMEIA by proceeds.

This dragged down 1H 2020 regional activities compared with 1H 2019, with the exception of Asia-Pacific, which benefited from some US Foreign Private Issuers (FPIs) completing their secondary listing in Hong Kong, together with strong performance from the Shanghai stock exchanges and Thailand recorded its largest IPO ever in 2020.

To get more insight into the steps companies need to take to maximize their chances of IPO success, download our Guide to Going Public (pdf).

  • Data definitions for all charts

    The data presented on this webpage and in the Global IPO trends: Q1 2020 report is from Dealogic and EY. YTD 2020 (i.e., 1 January–30 June) is based on priced IPOs as of 23 June 2020 and expected IPOs in June. Data is up to the close of business, 23 June 2020.

    • In compiling the IPO statistics included in these reports and press releases, we focus only on IPOs of operating companies and define an IPO as a “company's offering of equity to the public on a new stock exchange.”
    • This report includes only those IPOs for which Dealogic and EY teams offer data regarding the first trade date (the first day on which the security start trading on a stock exchange), and proceeds (funds raised, including any over-allotment sold).
    • The first trade date determines which quarter a deal is attributed to. Postponed IPOs, or those that have not yet been priced, are therefore excluded. Over-the-counter (OTC) listings are also excluded.
    • In an attempt to exclude non-operating company IPOs such as trusts, funds and special purpose acquisition companies (SPACs), companies with the following Standard Industrial Classification (SIC) codes are excluded:
      • 6091: Financial companies that conduct trust, fiduciary and custody activities
      • 6371: Asset management companies such as health and welfare funds, pension funds and their third-party administration as well as other financial vehicles
      • 6722: Companies that are open-end investment funds
      • 6726: Companies that are other financial vehicles
      • 6732: Companies that are grant-making foundations
      • 6733: Asset management companies that deal with trusts, estates and agency accounts
      • 6799: Special purpose acquisition companies (SPACs)
  • Definitions for IPO performance by geography

    • Americas
      includes the United States, Canada, Argentina, Bermuda, Brazil, Chile, Colombia, Jamaica, Mexico and Peru.
    • Asia-Pacific
      includes Australia, Bangladesh, Greater China, Fiji, Indonesia, Japan, Laos, Malaysia, New Zealand, Papua New Guinea, Philippines, Singapore, South Korea, Sri Lanka, Thailand and Vietnam.
    • EMEIA
      includes Armenia, Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, India, Ireland, Isle of Man, Italy, Kazakhstan, Luxembourg, Lithuania, Netherlands, Norway, Pakistan, Poland, Portugal, Russian Federation, Spain, Sweden, Switzerland, Turkey, Ukraine and United Kingdom, plus the Middle East and Africa countries listed below.
    • Africa
      includes Algeria, Botswana, Egypt, Ghana, Kenya, Madagascar, Malawi, Morocco, Namibia, Rwanda, South Africa, Tanzania, Tunisia, Uganda, Zambia and Zimbabwe.
    • Middle East
      includes Bahrain, Iran, Israel, Jordan, Kuwait, Oman, Qatar, Saudi Arabia, Syria, United Arab Emirates and Yemen.
  • Definitions for IPO deals – top stock exchanges

    We have used data from the main market and the junior market if applicable. The labels on the horizontal axis are the stock exchange tickers (see below for their full names):

    Asia-Pacific

    • ASX: Australian Securities Exchange
    • HKEx: Hong Kong Stock Exchange Main Board and its junior market, Growth Enterprise Markets (GEM)
    • IDX: Indonesia Stock Exchange
    • SET: Stock Exchange of Thailand and junior market, Market for Alternative Investments (MAI)
    • SSE: Shanghai Stock Exchange and Science and Technology Innovation Board (STAR)
    • SZSE: Shenzhen Stock Exchange and junior market ChiNext
    • TSE: Tokyo Stock Exchange (1st section, 2nd section, PRO Market) and junior markets, MOTHERS and JASDAQ

    Europe, Middle East, India and Africa

    • Euronext: Euronext (Amsterdam, Brussels, Lisbon and Paris) and junior market Alternext (Amsterdam, Brussels, Lisbon and Paris), 
    • Indian: India’s National Stock Exchange and junior market, Small and Medium Enterprise (SME) board and Bombay Stock Exchange and junior market SME board
    • LSE: London Main Market and junior market, Alternative Investment Market (AIM)
    • NASDAQ OMX: NASDAQ OMX Nordics Main Market and junior market, First North, based in Copenhagen, Helsinki, Stockholm and Riga

    Americas

    • NASDAQ: US’s National Association of Securities Dealers Automated Quotations exchange
    • NYSE: US’s New York Stock Exchange
    • BMV: Mexican Stock Exchange
  • Definitions for IPO deals by sector and IPO proceeds by sector

    Sectors are classified according to Thomson general industries using a company’s Sector Industry Classification (SIC) code. There are 11 sectors, which are defined below with their specific industries. The 11 sectors are shown on the horizontal axis.

    • Consumer:
      the combination of “Consumer staples” and “Consumer products and services” sectors. Its specific industries include: agriculture and livestock, food and beverage, household and personal products, textiles and apparel, tobacco, educational services, employment services, home furnishings, legal services, other consumer products, professional services, as well as travel services 
    • Energy:
      includes the following specific industries: alternative energy sources, oil and gas, other energy and power, petrochemicals, pipelines, power, as well as water and waste management
    • Financials:
      includes the following specific industries: asset management, banks, brokerage, credit institutions, diversified financials, government sponsored enterprises, insurance, as well as other financials
    • Health care:
      includes the following specific industries: biotechnology, health care equipment and supplies, health care providers and services (HMOs), hospitals, as well as pharmaceuticals
    • Industrials:
      includes the following specific industries: aerospace and defense, automobiles and components, building/construction and engineering, machinery, other industrials, transportation, as well as infrastructure
    • Materials:
      includes the following specific industries: chemicals, construction materials, containers and packaging, metals and mining, other materials, as well as paper and forest products
    • Media and Entertainment:
      includes the following specific industries: advertising and marketing, broadcasting, cable, casino and gaming, hotels and lodging, motion pictures/ audio visual, other media and entertainment, publishing, as well as recreation and leisure
    • Real estate:
      includes the following specific industries: non-residential, other real estate, real estate management and development, as well as residential
    • Retail:
      includes the following specific industries: apparel retailing, automotive retailing, computers and electronics retailing, discount and department store retailing, food and beverage retailing, home improvement retailing, internet and catalog retailing, as well as other retailing
    • Technology:
      includes the following specific industries: computers and peripherals, electronics, internet software and services, IT consulting and services, other high technology, semiconductors, as well as software
    • Telecommunications:
      includes the following specific industries: other telecom, space and satellites, telecommunications equipment, telecommunications services, as well as wireless

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Summary

The global IPO market is showing signs of recovery but companies hoping to list still need to remain highly vigilant to macroeconomic uncertainty, market turbulence and the continued threat of COVID-19.

About this article

By Paul Go

EY Global IPO Leader

Leads Chinese and multinational companies in client servicing domain. Heads Hong Kong real estate, hospitality and construction sector audit group.

Contributors