Must Read! IPO Market Scenario: Upcoming Floats & Outlook

Summary

• IPO market continues to face some headwinds amid virus induced market volatility touching its highest levels since the GFC.
• However, companies continue to take the listings route as COVID-19 situation is easing gradually.
• Outlook for the remainder of 2020 to be closely monitored amidst uncertainty surrounding global economic growth, business valuations, vaccine development and duration of virus containment.

While Global Virus Crisis continues to haunt global economies and financial markets, businesses are striving to stay afloat backed by capital raising, technological adoption and strategic survival strategies. While some are resorting to borrowings and loans, others are relying on placements and share purchase plans. Besides, IPO market is another route which has seen its own share of gainers and losers.

Notably, the transition from a private to a public company is a significant milestone for businesses that raise required capital from the process and for private investors to fully realise gains from their investment. Meanwhile, IPOs permit public investors to take part in the offering of sound businesses as well.

While IPOs connect companies with necessary capital for business expansions, job creation, retaining leading employees and elevating brands, the market is closely monitored amidst income crunch and crushed consumer confidence and cost cutting initiatives of businesses. Nevertheless, IPO is a significant process pumping innovation, driving growth and promoting healthy competition.

Current IPO Market

As 2019’s geopolitical tensions (US-China-EU trade tensions, economic growth concerns, Brexit issue, social unrest in Hong Kong) seemed to fade, though sluggishly, 2020’s IPO market was anticipated to shine.

After IPOs picked up steam and hit the ground running in the first two months of the year, key global stock exchanges suffered their worst intraday falls since the global financial crisis of 2008 (GFC) in March 2020, owing to the global pandemic (COVID-19). While market volatility touched highest levels since the GFC catalysed by the unprecedented impact of the invisible enemy on global markets, IPO market grabbed key attention.

Besides a ghastly March, Q120 IPOs raised USD 35.7 billion from 207 transactions, demonstrating a rise of USD 15.7 billion or 78 per cent as compared to Q119 (geopolitical uncertainties prevailed in this period).

Moreover, there were eight over USD 1 billion IPOs in the quarter, compared to a single one in Q119. Interestingly, the US continued to dominate the IPO space followed by China and Thailand. While, IPO activities were relatively subdued in EMEA and there was a resilient APAC noticed, maintaining IPO transaction volumes.

Some experts opine that the IPO market is expected to remain moribund in the near term, amidst uncertain market and economic scenario, others advocate some strength to be built up in the space eventually with gradual easing of restrictions, economies reopening, stimulus packages supporting businesses and vaccine trials success.

In this backdrop, let us look at some of the upcoming IPO’s.

Upcoming Global IPOs

Upcoming IPOs in Australia

In Australia, there are quite a few security exchanges operating but the Australian Securities Exchange (ASX) is most frequently relied. ASX is the world’s 4th largest pension pool and is expected to grow to $ 10 trillion by mid-2030s. Offering enhanced liquidity, ASX had a $ 1.75 trillion trading turnover in 2019 with 45 % international investors, paving way to global capital.

There have been 12 IPOs till now this year on the ASX. An upcoming float on the exchange is Tartana Resources Limited (ASX:TNA), which will trade under the ticker TNA. A miner and explorer, the Company is expected to raise approximately $6 million with projected issue price of $0.20.

GOOD READ- Australia's IPO Market – All You Need TO Know About IPO

IPO Blast From the Past

Across the years, floats or listings have seen their shares of success and failures driven by business fundamentals, market positioning and economic scenario. The GFC era witnessed least number of IPOs and the recession that followed saw IPOs ground to a halt, while for months new listings were a rare sight. Market then believed that IPOs will have to give the test of time.

The domino effect of GFC continued in 2012 when IPOs slumped to their lowest level. This was also the year when worries of economic slowdown heightened and Facebook, which was the largest technology IPO in U.S. history by then, demonstrated a disappointing stock exchange raising just over $16 billion. Its launch was perforated due to trading issues, bad timing, and questionable information-sharing accusations.

Moreover, The Securities and Exchange Commission (SEC) charged NASDAQ with securities laws violations due to poor systems and decision-making during the Facebook IPO, for which the exchange had to pay a whopping USD 10 million penalty, the largest ever against an exchange back then.

More recently, the much talked about IPO’s of Uber, WeWork and Lyft too failed as investors seemed unconvinced about the valuations and profitability of these companies.

However, it will be wrong to assume that it has been all doom and gloom for IPO’s. In 2010, while the world was feeling GFC shocks, General Motors marked the largest IPO for any U.S.?based company, raising USD 20.1 billion. In 2014, Alibaba, the Chinese online e-commerce giant was believed to be one of the biggest IPOs of all times. The company went public on NYSE at a whopping USD 21.8 billion and four days later, the value was USD 25 billion.

Not to forget, 2019 was a banner year for global IPOs as US IPOs outperformed at the S&P 500. Moreover, Saudi Aramco created history with a USD 2 trillion premier, the biggest on record.

2020 IPO Outlook

The outlook for the remainder of 2020 remains to be highly uncertain at least till markets are better attuned with the COVID-19 volatility. The effects of the lock-down measures on economies and how recovery will look after these are adhered to will play an instrumental role in deciding the IPO path in the future. Further volatility is likely as fund managers re-balance portfolios, while business valuations need to be closely monitored too.

The world economy has entered into a critical period and continues to march towards it. However, with Governments and central banks providing unprecedented liquidity, scenario could streamline in medium term. It should be noted that equity markets have a crucial role in ensuring that companies are able to survive, wherever needed, and flourish, wherever potential lies.

(Please Note: All currency in AUD, unless otherwise stated)