How has 2022 treated Australia’s IPO market so far?

Highlights

• The year 2021 saw an increased activity in the IPO segment after a muted 2020.

• There was an increased optimism among investors despite uncertainties.

After a dismal performance in the pandemic-hit 2020, the Australian IPO (initial public offering) market enjoyed a blockbuster year in 2021, with the highest capital raised since 2017. Even the market capitalisation of companies was far higher than in each of the last five years, reflecting the increased optimism among investors despite uncertainties.  

The year 2021 saw nearly double the amount raised via public offerings than in 2020. However, the increase in capital raised in 2021 was due to the higher number of IPOs, as against a rise in the average capital raised per IPO. Most offerings were with a market capitalisation of less than AU$50 million in 2021.

How has 2022 treated the IPO market so far?

Coming back to 2022, the companies have raised the lowest amount in equity in six years during the first quarter of the year amid the ongoing Russia-Ukraine conflict and expectations of interest rate hike According to Refinitiv data, nearly AU$3 billion raised across public offerings and follow-on equity deals so far in 2022 is the slowest start since 2016. The money raised is down 70% compared to the corresponding quarter of 2021.

The ASX 200 has fallen over 2% so far this year. The ongoing Russia-Ukraine conflict, concerns around interest rate hike and slowdown in China are only adding to volatility each day.

Earlier this month, the US Federal Reserve raised interest rates by a quarter percentage point for the first time since 2008 and signalled more hikes in all six remaining meetings in 2022.  A hike interest rates negatively impacts the IPO market as equities become less attractive to investors.

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Volatility in the financial markets

The S&P/ASX 200 VIX index sits over 26% - well above the 10.5% mark, at which it began the year. The ASX 200 VIX is a financial market product that participants trade based on the market price of the implied volatility in the underlying Australian equity index.

Meanwhile, the materials sector has accounted for AU$1.5 billion of the equity raised so far this year.

US Student Housing is the largest IPO so far this year. The real estate investment trust raised AU$14.9 million in the month of February.

Bottom Line

Even as investors may not fully rule out IPOs amid the ongoing geopolitical tensions, they are likely to be more selective with the deals. The reason for caution is that public offerings take a longer time to get executed and hence, are exposed to increased levels of market volatility.

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