Credit crisis cripples Europe’s IPO markets

LONDON - New issuance volumes in Europe, Middle East and Africa (EMEA) markets came to a virtual standstill last month as credit market fears killed investors’ appetites.

By (Reuters)

Published: Tue 2 Oct 2007, 4:41 PM

Last updated: Thu 4 Jul 2024, 2:28 PM

In September, total IPO volume in EMEA markets plunged 91 percent, from the same month last year, to $524 million, according to London-based market research firm Dealogic.

Not long ago, investment banks were expecting more listings from Russia and the Middle East to keep markets buoyant after the summer break. However, what started off as ring-fenced problems in the US subprime mortgages at the beginning of the year quickly spread to other markets.

On Monday, in the latest signs of a weakened market, British computer services firm SmartStream Technologies Group withdrew a $203 million IPO, and Russia power firm OGK-2 cut the size of its share offering by 38 percent, pricing the stock at a 2 percent premium to its market price.

Caution

‘Many people that participated quite actively in ECM transactions in the first half of this year, after what has happened over this summer, would be a lot more cautious in terms of the amount of money they commit to new issues,’ ABN AMRO Rothschild’s European head of equity capital Jeroen Berns said.

‘Issuers have to prepare for much more critical investor audiences, from both long-only funds as well as hedge funds.’

In anticipation of a more volatile market, Russia’s UC RUSAL—the world’s top aluminium producer—decided, two weeks ago, to shelve a $9 billion flotation plan on concerns over a global liquidity crunch.

‘IPO are probably the most difficult type of ECM transactions in a market like this,’ said Sam Dean, Deutsche Bank’s global head of equity syndication and head of European ECM.

‘You have to be in the market for a period of time to get them done and it’s hard to be sure that you will have a clean run without any market turbulence.’

But investors are still looking at IPOs.

‘The IPO market is not going to dry up, we are still interested in non-financial sectors such as green tech,’ a London-based fund manager said.

Italian renewable energy firm Fri-El Green Power started pre-marketing a 200 million euros ($284 million) IPO arranged by Merrill Lynch and UniCredit.

Engineering group Maire Tecnimont is also planning to launch a 600 million euros IPO, arranged by Lehman Brothers later this month in what would be Italy’s biggest offering in the second half.

Dean also expects other types of equity market transactions, such as convertible bonds and exchangeable bonds to grow.

‘Right now the equity-linked market is definitely open,’ he said. ‘I think it’s probably the only asset class that, to some issuers, is now providing more attractive terms than back in June.’