Baker McKenzie | There were no public listings in Spain in the first half of 2019, consolidating the progressive decline in these operations since 2017.
According to the 1H 2019 Cross-Border IPO, elaborated by Baker McKenzie, the lack of clarity in the domestic political context, the increase in trade tensions and the lack of a solution to Brexit, including the fall of the May government, have provoked the lack of IPOs in the first half of the year.
In relation to this data, Enrique Carretero, partner responsible for capital markets at Baker McKenzie, signals that “the combination of national political instability with global geopolitical uncertainty – led by the absence of clarity or agreement over Brexit, trade tensions and the less than encouraging economic forecasts – have proved the perfect breeding ground to intimidate both companies with plans to float and potential investors. To that we can add the volatility in share values in certain sectors, with the unsatisfactory performance in the market of companies which have floated in recent years, which causes flotations to be postponed to be carried out in a calmer context, even if the odd flotation cane still be expected in the second half of 2019.”
Global falls in volume and value
The capture of capital in global markets through flotations has fallen 37%, with volume falling 34% in the first quarter of the year compared to the same period in 2018. 69.8 Bn$ was raised in 514 flotations which points to the lowest volume since 2016. The reasons for this significant fall are various: from the temporary shutdown of the US federal government – between December 2018 and January 2019 – to the increase in trade tensions between the US and China, passing through the paralysis of Brexit and the lack of withdrawal agreement – originally planned for March – as well as the reduction in mega transactions (those flotations with a volume above 1 billion dollars). All the factors cited have contributed to a significant slowdown in the market which is provoking an increasing competition between stock markets, as some stock markets carry out strategic changes to attract new IPOs. Among these new ways of seeking companies to list on their indices, we would highlight the introduction of the Innovation in Science and Technology Board in China, designed to try to attract companies from the New York and Hong Kong stock markets. The idea is to configure a competitor to both markets in attracting flotations be technology companies.
Cross-border operations reduce significantly
After a buoyant 2018, cross-border stock market activity at a global level reduced in the first quarter of 2019, the total value falling 55% to 11.3 Bn$ and the volume of flotations falling 16%, with 85 new companies listing. The fall in capital captured by Chinese issuers is the principal reason for the reduction in value registered in the first quarter of 2019. Despite a fall in value of 62% compared to last year, China continues to carry out a high number of cross-border flotations, which have raised more than 8.8 Bn$ in the first half of 2019 from flotations in the markets in both Hong Kong and the US.
The stock markets in Hong Kong and the Nasdaq came first as destinations for cross-border flotations, being also the only stock markets which showed an increase in activity, 7% and 33% respectively. As a result, we see that the value of the cross-border index, elaborated by Baker McKenzie in the first quarter of 2019, fell to 18 from the 19.8 registered in the same period of 2018, which illustrates a slight fall in the proportion of cross-border flotations, although it remains above the lows of 2016 and 2017.
Political and trade uncertainties cause a fall of volume in EMEA
Flotations in EMEA encountered difficulties in the first six months of 2019 due to the uncertainties which surround the UK´s withdrawal from the EU. The capital raised in general fell 67% compared to the same period in 2018 to 9.2 Bn$, while the number of flotations fell 61% to 47.
Cross-border activity was also affected, with only three new companies debuting in EMES markets following a cross-border operation, and only one of those in the London stock market. The levels of domestic activity helped the London Stock Market retain first place in terms of volume of capital in general with 2.7 Bn$ with 12 new companies listing in the British capital, of which 7 are financial sector companies capturing around 2 Bn$. In second place after London was the Italian stock market with 2.3 Bn$ in 7 flotations, driven by the flotation of Nexi SpA, valued at 2.2 Bn$.
Despite its slow performance, EMEA is showing its strength in flotations of companies from the FinTech sector, particularly in the field of methods of payment, as digitalisation and cash-less transactions continue to evolve, driving the need for innovation and technological growth. This sector´s flotations represent more than a third of the capital raised, with the afore mentioned Nexi SpA being the largest.