IPO market nearly paused, but exchange leaders expect 2023 boost

By John McCrank

NEW YORK (Reuters) - A global slowdown in initial public offerings due to heightened market volatility and a regulatory cloud over new listings from China has created pent up demand that could lead to an IPO boom in 2023, industry executives told the Reuters NEXT conference.

Global IPOs hit record-high levels in 2021, driven by rallying stock markets and rock-bottom interest rates, but the number of companies going public has slowed sharply this year as central banks have rushed to hike rates in an attempt to tame decades-high inflation, roiling markets in the process.

"Clearly the underwriting calendar is effectively zero and if you are an underwriting business, you are not making any revenue," Morgan Stanley Chief Executive James Gorman said at the conference on Thursday.

Proceeds raised by IPOs this year are down around 93% versus 2021, said Lynn Martin, president of Intercontinental Exchange Inc's New York Stock Exchange.

"The reason companies aren't coming to market isn't because the public market currency isn't strong," she said in an interview on Wednesday. "In fact, our pipeline is tremendous. The reason these aren't coming to market is because of all the volatility in the market."

Volatility has been heightened since the beginning of the pandemic by a large increase in electronic trading driven by algorithms, which has led to faster and larger volume spikes than were seen even five years ago, LSEG Group Chief Executive David Schwimmer said on Thursday.

There are about 200 companies currently waiting to go public on the Nasdaq, which is below the range of 250-300 over the past few years, Nasdaq Inc CEO Adena Friedman said on Wednesday.

The IPO market has gone "on almost a pause" as investors wait for clarity around the extent to which interest rates are going to rise, she said.

"We are hopeful that the second half of '23 becomes an opportunity for companies to get out, but I would expect a quiet first half," she said.

Increased scrutiny over the accounting practices of Chinese companies listing in the United States has been another factor in the slowdown in IPOs.

Nasdaq postponed the IPOs of several small Chinese companies in October as it investigated short-lived rallies following the IPOs of such companies, while earlier in the year, five Chinese state-owned enterprises whose audits have been under scrutiny by U.S. regulators delisted from the NYSE.

The NYSE's Martin said a potential deal between U.S. and Chinese authorities over allowing U.S. audits of China-based firms appeared promising.

IPO proceeds at Hong Kong Exchanges and Clearing Ltd (HKEX) are on track to be at their lowest level in a decade, hurt by China's economic slowdown, a sweeping regulatory crackdown that has tightened scrutiny over companies' fundraising outside mainland China, and geopolitical tensions.

There are around 100 companies in HKEX's pipeline, many of which are waiting for market sentiment to improve so that their valuations are higher when they come to market, HKEX Chairman Laura Cha told  the  Reuters NEXT conference on Wednesday.

"I am quite confident that the IPO market activity will return very quickly in the new year," she said.

(Reporting by John McCrank, Saeed Azhar, Lananh Nguyen, John Sinclair Foley, and Peter Thal Larsen in New York and Sumeet Chatterjee in Hong Kong; editing by Megan Davies and Deepa Babington)