Businesses withdraw IPOs amid stock market volatility

Initial public offerings (IPO) hovered at high levels last year, but since the start of this year, many firms have either cancelled or postponed planned listings and there have been moves to suspend bond issues.

With investors less willing to take risks amid a fall in stock prices triggered by the Ukraine crisis, among other factors, stagnating finances could deliver a blow to the global economy, which is still reeling from the Covid-19 pandemic.

According to the Tokyo Stock Exchange (TSE), six companies have cancelled or postponed IPOs this year, the same number of such withdrawals in the whole of last year.

On March 7, SBI Sumishin Net Bank Ltd announced it will postpone its TSE listing, which had been scheduled for March 24. The Nikkei Stock Average is down about 10 per cent from the end of last year.

While investors are cautious about investing in stocks, it is not clear whether companies will be able to raise the funds they want through IPOs.

The situation is similar overseas. According to the Wall Street Journal, planned listings have been postponed by Efima PLC, a Finland-based cloud service provider, and Norwegian wind turbine installer Fred Olsen Windcarrier.

According to Bloomberg news, the value of capital raised through IPOs in the two weeks following the Ukraine conflict totalled $110 million in Europe, more than 96 per cent down from the $2.8 billion raised during the corresponding period last year.

In North America, it totalled $1.7 billion, down about 93 per cent from the $24 billion raised a year earlier.

The impact of the turmoil in Ukraine has also spilled over to corporate bonds, the main way companies secure funds.

Long-term interest rates have risen globally since the start of this year due to a speculated interest rate hike by the US Federal Reserve coupled with economic recovery from the Covid-19 pandemic.

Companies are less likely to attract market interest in their bond issues unless they guarantee higher yields than government bonds and other securities, which raises the costs of procuring funds.

Compounding the situation is the deterioration in investor sentiment due to the conflict in Ukraine. As a result, an increasing number of companies see little merit in issuing corporate bonds at this time.

Since last month, Japan Airlines Co, Eneos Holdings Inc and Aeon Mall Co have postponed bond issues designed to raise funds for decarbonisation measures.

The situation is the same overseas, with Spanish water management firm FCC Aqualia SA also deciding to shelve a planned bond issue.

“We want to issue bonds quickly to accelerate our decarbonisation efforts, but it’s hard to predict how much demand there will be from investors.” said an official of a Japanese firm.

SMBC Nikko Securities Inc, which handles corporate bond offerings, had expected fiscal 2021 bonds to total 14 trillion yen ($117.5 billion).

However, the pace of issuance has slowed since the beginning of the year and there is a strong possibility the forecast will not be met, with the figure currently standing at 13.1 trillion yen.

If IPO listings and corporate bond issuances stagnate, funds will not flow to start-ups, which are the engines of economic growth. Growth areas such as decarbonisation and digitisation may also see investment evaporate.


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