- Q1 2023 global IPO volumes fell 8%, with proceeds down by 61% YOY
- Only one single mega IPO, stemming from the Middle East, with US$2.5b in proceeds
- Asia-Pacific dominated the quarter, accounting for 59% of global IPO deals
- Indonesia capital market is expected to be robust and active throughout 2023
JAKARTA, 14 APRIL 2023. Through just one quarter of 2023, it was more of the same for the stuttering global IPO market. With a total of 299 IPOs raising US$21.5b, an 8% and 61% decrease year-over-year (YOY), respectively, Q1 was another down period amid interest rate rises, a lukewarm stock market, entrenched inflation and unexpected global banking industry turbulence. Despite this ongoing uncertainty around the economic and geopolitical environment, IPO pipeline continues to build and hope remains for a turnaround later this year. These and other findings were published in the EY Global IPO Trends Q1 2023.
Technology companies, which have been a mainstay of IPO activity in recent years, experienced some sharp declines in valuations and the turmoil in the crypto markets and the global banking industry has not helped. While technology continued to lead in IPO volume, four of the top 10 listings in Q1 2023 were in the energy sector.
High liquidation and poor post-listing performance of de-SPACs dampened investors’ appetite for new IPOs. This quarter, SPAC IPO activity was one of the lowest in recent years; it hit a six-year low in terms of volume, with proceeds also down to levels not seen since 2016. As market conditions remain challenging and many promoters of SPACs listed in early 2021 need to complete or unwind their transactions, SPAC IPO activity is likely to be muted in the near term.
Overall regional performance: Any early euphoria disappeared by the quarter end
The Americas IPO activity was in line with Q1 2022, but it was well below the levels seen in comparable periods over the last decade, finishing out this quarter with 40 deals and US$2.6b in proceeds, up 11% and up 9%, respectively, YOY. On US exchanges, there were 31 deals, eight of which were in excess of US$50m. Meanwhile, Canada saw its biggest IPO since May 2022, raising more than US$100m in proceeds. Even though IPO activity levels have been on the lighter side, we have begun to see some early positive developments in the areas of inflation, interest rates, valuations and market volatility, which could set the stage for a potential recovery in the Americas IPO market.
Although the Asia-Pacific IPO market accounted for 59% of global IPO deals, its activity declined 6% by number and plummeted 70% by proceeds, respectively, YOY, recording only 175 deals and US$12.7b in proceeds for the quarter. Despite the lifting of almost all its pandemic control measures earlier this year, the Mainland China market was a bit quieter than usual, but it is on a healthy projected track and still accounted for more than 40% of all global IPO proceeds. Hong Kong, also usually a powerhouse for new listings, was uncharacteristically quiet. Overall, Asia-Pacific, took a “wait and see” attitude, as investors keep their powder dry and look for further indicators of market recovery.
Across Southeast Asia, IPO activity appeared encouraging, with 51 deals raising US$1.4b in proceeds (up from 29 IPOs raising US$1.0b in Q1 2022). Indonesia was the most active in Q1 2023, with 30 IPOs raising US$828m, followed by Thailand (10 IPOs raising US$322m), Malaysia (10 IPOs raising US$238m) and Singapore (1 IPO raising US$15m).
As many companies withdrew or postponed their IPO filings due to market conditions, EMEIA IPO activity fell 19% by numbers and 36% by proceeds YOY, recording 84 IPOs raising US$6.2b for Q1. India as a region had the largest number of IPOs in EMEIA, even though it had a sharp decline of 83% in proceeds. Globally, the Middle East was the only region with a mega IPO. Despite positive economic indicators, sentiment remains cautious, with investors being selective in a buyers’ market, seeking profitable and sustainable business cases.
Paul Go, EY Global IPO Leader, says:
“Amid persistent macroeconomic and geopolitical uncertainty, exacerbated by stress in the global banking system, IPO windows are fleeting and funding conditions are getting tougher, with investors prioritizing value over growth. IPO-bound companies need to focus on building sustainable businesses with strong fundamentals to be well-positioned in a volatile environment and meet the challenges and opportunities of going public.”
Indonesia consistently tops the Asean IPO amid the region’s optimistic macroeconomic prospects
Sahala Situmorang, EY Indonesia Strategy and Transactions Partner says:
“Over the last 4 years, Indonesia has seen the total value of equity issuances increase from IDR 15 trillion in FY2019 to IDR 33 trillion in FY2022. In fact, in 2022, the country’s capital markets recorded the greatest number of issuances in its history with 59 IPOs – the most notable of them being the public listing of tech firm GoTo, which raised IDR 14 trillion in its equity offering. This year, as of Q1 2023, Indonesia’s IPO market has seen up to 30 IPOs, with issuance value ranging from Mitra Tirta Buwana’s USD 1.91 million and Pertamina Geothermal’s USD 596 million.”
The macroeconomic optics pertaining to the risk factors relevant to the capital markets include; rising inflation rates that may incentivize central banks to further tighten monetary measures, thus increasing discount rates over the short to medium term, resulting in lower valuation estimates; and negative market sentiment over the anticipation of a global recession amid the recent global banking turbulence making it suboptimal for firms looking to raise equity funds in the public markets. However, companies with strong fundamentals and planned growth initiatives with justifiable prospects may still make attractive investment targets and warrant higher valuations. Furthermore, the banking crises that befell major banking names in the US and Europe have stirred fears of a subsequent financial crisis in the making among market participants. Nevertheless, it seems to be that such fears are enhanced on top of a projected economic slowdown that is mostly concerned with idiosyncratic factors among select cases in the US and Europe, which are extenuating conditions in the Asia Pacific markets given its relatively optimistic macroeconomic prospects.
Taking a closer look into Indonesia, the GDP is projected to grow by 3.6-5.0% and inflation stabilizing with Bank Indonesia’s guidance at 3-4%. Factors that support such economic performance are mostly driven by the following:
- Post-pandemic recovery resulting in an increase in both consumer and government spending.
- Structural reforms such as UU Cipta Kerja passed and in place of supporting a friendlier business environment for private and foreign investment in Indonesia jumpstarting the driving force behind Indonesia’s expanding manufacturing sector. The revocation of public restrictions has lifted mobility and restarted economic activities that subsequently saw increases in consumer spending which are also supported by higher minimum wages.
Research analysts estimate that the consumer confidence index (CCI) will grow given the positive underlying sentiments of the domestic economy. This elucidates analysts’ preferences for the consumer non-cyclical sector for reasons such as expanding margins and good earnings growth due to the normalization of agricultural prices and higher average selling prices, along with the precedent catalysts mentioned. Despite the global banking turbulence, Indonesia equity strategists are bullish on Indonesia’s financial sector with expected strong loans growth, higher net interest margins and lower provisions that supports banks’ profitability. The strong loans growth is supported by the fact that working capital loans are increasing in line with increased mobility and economic activities, while demand for investment loans is exacerbated by corporates on capex spending considering the recent structural reforms. Growth in the banking sector is also coupled with improving asset quality with NPLs decreasing to 2.4% in December 2022 from 3% in the previous period.
As per 31 March 2023, the Indonesia Stock Exchange has 44 issuers under its IPO pipeline. The top 3 sectors by number of prospective issuers are consumer non-cyclicals with 11 prospective issuers, basic industrials (6) and the technology sector (6). Other sectors represented within the pipeline include primary consumer goods, real estate, transportation & logistics, financial, industrials, energy and infrastructure. There are diverse profiles among the issuers within the pipeline in terms of asset sizes: 14 issuers are categorized as large scale, 26 medium-sized and 4 small offerings (i.e. assets greater than IDR 250 billion, assets between IDR 50 billion to IDR 250 billion and assets under IDR 50 billion respectively). With Q1 seeing the number of issues surpassing 50% of 2022’s issuances by deal volume, we can expect the IPO market to be robust and active throughout 2023 that includes diverse profiles and sectors expected to go public.
Q2 2023 outlook: a glimmer of hope
Despite the unforgiving economic and geopolitical backdrop, there is light on the horizon, with peaking inflation, energy prices softening and the rebound of Mainland China’s economy. However, the backlog for IPOs is continuing to build as companies are holding out for the stock markets to stabilize and rebound before listing.
In a highly unpredictable and persistent inflationary environment, investors who were previously oriented toward funding growth and potential are now more focused on the path to profitability and cash flows. Collaboration between governments, including cooperation and stock-connect programs, along with investor appetite for diversity, could also lead to a wave of dual listings and cross-border deals this year.
Businesses will need to navigate the high-cost and reduced liquidity environment for a little longer. Once there is evidence of a more stable market with higher certainty, investor confidence should return, and prominent companies that had postponed IPO plans may restart, albeit at more modest valuations.
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