Cross-Border IPO Index 2019
Analyzing the key trends in cross-border IPO transactions for 2019.
Cross-Border IPO Index 2019
Global IPO market contracts under political uncertainty
Global IPO market contracts under political uncertainty — but domestic capital raising bucks the trend.
Global IPO market contracts under political uncertainty — but domestic capital raising bucks the trend
Geopolitical tensions combined with overoptimistic valuations on a number of high-profile listings have constrained activity in the global IPO market during 2019.
As a result of increased levels of political volatility, global IPO volumes have retrenched, albeit domestic capital raising value has shown an impressive increase, driven largely by a number of mega IPOs in the US and China markets.
Total global IPO activity fell by 20% to 1,242 listings, while the value of capital raised fell by 8% to USD 206.1 billion
Issuers took to the sidelines in the face of uncertainty in a number of key financial markets including the US, Hong Kong and the UK.
Both investors and issuers hesitated on global geopolitical tensions, such as the ongoing US-China trade tension, the extension of the Brexit deadline, the unrest in Hong Kong, and the tumultuous civil and political unrest throughout Latin America.
Further enhancing depreciating market conditions, several high-profile, pre-profit unicorn IPOs performed poorly this year, disappointing investors and adding weight to the question of whether private valuations are a realistic indication of a successful IPO performance.
In this context, investors became more cautious of similar types of listings coming to the market, leading to increased levels of scrutiny of company financials and paths to profitability. This change in investor sentiment, led to a number of postponements and cancellations among anticipated offerings – the most notable being the cancellation of the WeWork IPO.
In the meantime, whispers of progress in the US-China trade war were seemingly premature, as President Trump has indicated that he is in no rush to sign an agreement. In fact, there are signs that the US-EU trade issues are also escalating, with increased tariffs proposed in a number of industries and jurisdictions.
Activity in the global IPO market in 2020 is set to remain subdued, with the threat of a downturn further enhanced by the upcoming 2020 US Presidential election, which tends to increase volatility in the global market.
2019 Geopolitical Developments and the Impact on Public Listings
US-China trade tension
Chinese issuers move closer to home
US exchanges announce tightening restrictions on Chinese companies
President Trump indicates there is no urgency to resolve the ongoing trade war
Rising US-EU trade tension
- Tensions continue to increase as Trump threatens tariffs in a number of jurisdictions
- 75% drop in cross-border IPOs on the LSE, as Brexit is delayed, despite significant progress
Hong Kong unrest
Better news on the home front
Domestic IPO capital raising bucked the overall trend, with key markets performing better than expected. Despite the lower levels of activity, 2019 has seen some of the largest IPOs to ever come to market, including Alibaba’s USD 11.2 billion offering, Uber’s USD 8.1 billion listing and the much awaited listing from Saudi Aramco – said to tip the value scales at between USD 25 -30 billion.
While the number of domestic IPOs dropped by 20% to 1,048, total domestic IPO value increased, as capital raising climbed 4% to USD 167.4 billion
Of particular note were the strong domestic performances of both the US and China, which each enjoyed a number of large landmark deals. In the US, capital raised across 184 issues totaled USD 57.2 billion, a 31% increase over 2018, and only a 2% drop in volume. The biggest deals recorded were the USD 8.1 billion listing of Uber on the New York Stock Exchange (NYSE), the USD 3.3 billion listing of Avantor on NASDAQ, and the USD 2.6 billion listing of Lyft, also on NASDAQ.
It has been an interesting year for the global capital markets as unexpected issues, both in the market and politically, have significantly impacted upon activity and investor sentiment.
While we entered 2019 on an optimistic note, underperformance of a number of larger listings coupled with heightened political issues saw a more muted end to the year than anticipated.
Despite these macro-environment factors, we saw some of the largest IPOs of all time, with issuers braving the elements to go public and raise capital ahead of what is expected to be a downturn in the global markets in 2020.
Global Chair, Capital Markets
Meanwhile, China featured a remarkable number of 179 domestic IPOs, representing a significant 77% increase in volume from 2018, and totaling USD 31.8 billion, an impressive 58% increase in value year on year. Headline deals include the Postal Savings Bank of China’s listing of USD 4.1 billion on the Shanghai Stock Exchange, CGN Power’s USD 1.8 billion IPO on the Shenzhen Stock Exchange, and China Zheshang Bank's USD 1.8 billion listing in Shanghai.
Where unrest in Hong Kong has been ongoing for a number of months, the domestic IPO market saw a slowdown in the number of offerings, down from 93 in 2018 to 41. The USD 5.7 billion Budweiser listing and USD 1.4 billion IPO of ESR Cayman did however offset against a similar drop in capital raising, instead supporting a jump of 424% against last year.
Elsewhere in the domestic markets, Italy led the way in Europe, Middle East and Africa (EMEA) with 30 listings raising over USD 2.6 billion, followed by the UK with 26 deals notching up USD 6 billion. December looks set to see the launch of the Saudi Aramco IPO on Tadawul, the Saudi exchange. If the overallotment of shares are exercised, this is expected to fast become the largest IPO in history, taking the title from Alibaba’s USD 25 billion NYSE offering in 2014.
Cross-border decline not all it seems
2019 reserved quite a few political surprises globally. The year kicked off with a government shutdown in the US, which paused activity on the NYSE and NASDAQ; the Brexit saga, which progressed to a certain extent, has been pushed back again into 2020; and the year ended with the continued political unrest in Hong Kong. In addition to the delays that these factors caused, a number of major listings were cancelled or delayed, including GFL Environmental, Homeplus K-REIT, ReAssure, SDIC, Latitude Financial, Endeavor, Virgin Trains USA and Vine Resources. As a result, cross-border IPO activity was pared back during 2019.
However, it’s worth noting that despite what appears to be a significant decline in cross-border activity, we are still seeing the hangover effects of a hugely active cross-border market in 2018. In fact, cross-border value and volume in 2019 are at the second-highest level since 2015.
Somewhat skewed against the anomaly of heightened activity in 2018, cross-border volume declined 17% to 197 IPOs, raising USD 40.9 billion, a decrease of 35% year on year.
In the face of the unrest in Hong Kong, cross-border activity remained strong, with only a 4% drop in volume, as issuers remained confident in the infrastructure and investor base. Such is the case of Alibaba’s USD 11.2 billion Hong Kong listing, where, despite a postponement earlier in the year to assess market conditions, it performed strongly – and has since exercised an overallotment of shares, raising a rumoured USD 1.7 billion.
In the US, 2018 saw an unprecedented number of cross-border IPOs from Chinese tech issuers; this somewhat slanted the 13% decline shown in 2019 offerings. However, hand in hand with this decline comes the increase in domestic Chinese listings, suggesting that we could be seeing the impact of the long-running US-China trade war.
Cross-Border IPO index
While 2018 was a blockbuster year for cross-border IPOs, 2019 was less ebullient, resulting in the Cross-Border IPO Index dropping by 35% to 19.5. Despite this drop, it remains at its second-highest level since 2014, as performance against previous years remains elevated.
Why 2019 saw a number of high-profile delayed and cancelled IPOs
There were several public debuts that were delayed or altogether cancelled during the year due to geopolitical factors and poor market conditions, such as low investor demand and pricing. Over 80 companies pulled back on their plans to go public this year.
In addition, the post-IPO performance of some of the larger and highly anticipated listings prompted investor caution around similar offerings coming to market. The fall of the WeWork IPO was among the most notably impacted by this change in investor sentiment towards pre-profit companies hoping to make their debut.
Financials retains top spot, despite decline in activity.
Financials retains top spot, despite decline in activity
2019 was a year dominated by high value listings from various industries, such as Alibaba, the Uber and Lyft duo and Budweiser; with Saudi Aramco set to close in December, potentially raising up to a whopping USD 30 billion, if it exercises its overallotment of shares.
The Financials sector has held on to its position at the top of the leader board in 2019 for both volume and value. The most notable listings include China's Postal Savings Bank's USD 4.1 billion debut on Shanghai in November and Nexi SpA's USD 2.3 billion debut on Borsa Italiana. Despite a decrease of 26% to 236 deals, the sector still raised an impressive USD 45.8 billion, a 3% increase in value from last year.
High Technology also saw fewer IPOs but, as with Financials, enjoyed an increase in value of 12% to USD 36.3 billion from 202 IPOs. The sector saw five mega IPOs, led by Uber’s USD 8.1 billion IPO, Lyft’s USD 2.6 billion listing and the USD 2.2 billion offering from TeamViewer.
The Energy and Power sector is set to see a boost in capital raising with Saudi Aramco’s IPO set to close in December. China delivered the only other mega listings - CGN Power’s USD 1.8 billion listing on Shenzhen Stock Exchange and Ningxia’s Baofeng Energy Group’s USD 1.2 billion public debut in Shanghai.
Retail raised USD 20 billion and enjoyed a 78% increase in value, provided by Alibaba’s listing on November 25, in Hong Kong. The company announced that it will maintain its primary listing in New York, while leveraging Asian investor pools as it moves to fund its expansion plans.
Also due to a one-off mega deal, Consumer Staples saw an increase in capital raised by 234% on the back of Budweiser’s USD 5.7 billion listing in Hong Kong, the third largest deal of the year, behind Alibaba and Uber, set to drop to fourth place pending the Saudi Aramco IPO.
Media and Entertainment was the only sector that recorded an increase in the number of IPOs in 2019, climbing 28% to 55 listings, which raised USD 3.8 billion, up 11% from 2018. The largest deal in this sector was French lottery operator Francaise des Jeux's (FDJ) IPO on Euronext, which raised USD 1.8 billion.
Spotlight on Biotech and Pharma
After last year’s impressive performance, where USD 12.1 billion was raised across 115 listings, driven largely by domestic US activity, the biotech and pharma sector retreated to a level on par with previous years. Despite the drop in volume to 89 IPOs, average deal values were higher, seeing a total value raising of USD 10.1 billion.
Cross-border activity showed resilience with an increase in both value and volume, as USD 4.3 billion was raised across 20 IPOs — the highest result since 2015. In fact, the top four listings in the industry were cross-border. The largest deal, and indeed the only mega IPO in this space, was China’s USD 1.2 billion listing from Hansoh Pharm Grp on HKSE.
Start-ups, including those yet to profit are performing at a higher level than those traditional larger pharma companies, who are struggling with a fall in stock prices, as the risk of patent expirations from single blockbuster products grows. As the need for innovation and technological development grows, we are also seeing an increasing number of mergers and joint ventures in this industry.
Investor sentiment for pre-profit companies in the biotech space differs significantly from those in other industries. Many IPOs from pre-profit companies are raising capital to fund clinical trials, an expensive stage in their journey. As R&D progress is quite developed at this point, investors have more confidence that these clinical trials will bear fruit, successfully bringing products to market and delivering high levels of return on investment. Essentially, their path to profitability is clearer than that of companies in other sectors.
NASDAQ paved the way as the stock exchange of choice for biotech and pharma listings, unsurprisingly, with 39 issues pooling USD 4.6 billion. This dip in capital raising, 27% down on 2018, largely accounts for the decline in overall figures in the sector. However, NASDAQ could begin to see challenges from other exchanges for these types of listings, as several jurisdictions have already made significant changes in their market in an effort to encourage these sought-after offerings.
China’s STAR market set to woo issuers
China has long been held back by its restrictions on issuers listing in their market, notably around profitability levels, corporate governance concerns and constraints on majority foreign-ownership firms. As a result, issuers instead looked to raise capital on international venues. When China lost the Alibaba listing to the US, it prompted a revision of these restrictions to modernize the market and its exchanges.
From this, came the launch of the STAR Market, the only market in China where loss-making companies can go public - essential for yet-to-profit, younger biotech companies still in the earlier stages of R&D. The exchange, which began trading in July, has seen six biotech listings, which raised almost USD 1 billion. Claiming six of the 11 domestic biotech and pharma listings, STAR Market already looks set to shake up the competitive landscape.
Hong Kong Stock Exchange joins the battle for biotech
Changes on the Hong Kong Stock Exchange helped encourage China’s offerings, as evidenced by the fact that seven of China’s nine cross-border biotech and pharma listings were placed there. So, while still in its infancy, the regulation changes seem to already be having an impact.
In April 2018, Hong Kong implemented changes that allowed biotech companies, who have no revenues or are yet to profit, to list; provided annual revenues are no less than HKD 1.5 billion. The biotech sector was chosen as part of the exchange’s move to widen market access for early stage companies.
Despite the higher risks that come with investing in what are usually pre-profit companies, venture capitalists have long played a significant role in biotech start-ups - with the promise of richer rewards driving investor sentiment.
A rather new trend we are seeing in this space is venture lending, where VCs and VC divisions of Big Pharma are lending funds to smaller biotech and healthtech companies instead of acquiring equity. This should go a long way in buoying these types of companies as we look set to enter a more volatile 2020 market.
Global Chair, Healthcare and Life Sciences
Stock Exchange Insight
Draw of US and China remains strong, but global stock exchange competition tightens.
Draw of US and China remains strong, but global stock exchange competition tightens
As political tensions have intensified globally and increased volatility on the markets, stock exchanges—particularly in key financial centers—are vying to attract IPOs and competing to find innovative ways to attract issuers, through regulation or technological platforms.
In 2019 Hong Kong introduced the floating of dual-class shares, or weighted voting rights (WVR) and, as mentioned, has already made changes to permit the listings of pre-profit biotech companies. The launch of China’s STAR Market was designed to rival the US as a NASDAQ-style tech board.
While competition is heating up, the US and China have continued to dominate the league table of most popular stock exchanges by both volume and capital raised this year.
NASDAQ regained its crown from Hong Kong as the most active exchange with 183 and 143 issues respectively. The late-year Alibaba offering kept Hong Kong at the top of the leaderboard for value. Given the political unrest this year, Hong Kong fared reasonably well. The exchange raised almost USD 35 billion which, while impressive, was still 7% lower than the amount raised in the previous year.
In turn, US exchanges performed well, heavily buoyed by domestic activity and in the shadow of contracted cross-border listings. There were nine mega listings in the region, all of which were domestic and accounted for 32% of all capital raised. Capital raising in NASDAQ climbed 12% to USD 33.6 billion across 183 listings, with the NYSE experiencing a slight decline of 4%, raising USD 31 billion across 63 listings.
In the UK, while Brexit remained the albatross around the neck of the London Stock Exchange, there were still pockets of progress as the exchange welcomed the first transaction on the Shanghai-London Connect in July. Huatai Securities successfully raised USD 1.7 billion in London, giving the region a much needed boost in value, along with the two other mega deals that listed on the LSE, helping to secure its second place ranking for both value and volume. A total of USD 7.4 billion was raised in London from 27 IPOs.
PE and VC-Backed IPOs
Private equity backed activity plummets, as VC backings soar.
Private equity backed activity plummets, as VC backings soar
Despite a phenomenal performance from PE-backed IPOs last year, driven by an increased number of mega listings in the market, activity in 2019 has taken a nosedive. This has largely been attributed to the impact of geopolitical and macroeconomic issues on public market performance, muting the attractiveness of exits. This was further enhanced by the growing trend among companies choosing to stay private for longer, buoyed by the abundance of dry powder in the market.
Capital raising among PE-backed IPOs dropped a stark 66%, raising only USD 12.3 billion compared to USD 36.6 billion in 2018, from a paltry 25 listings. This represented a 68% decline against the 79 issues that 2018 delivered. The decline was starker for cross-border issues, which saw a 91% fall in capital raised to USD 933 million from just four issues, as domestic performance led the way.
VC on the other hand, delivered a record-breaking year for capital raising, with USD 49.3 billion raised across 277 listings. The largest of these listings came from Uber in May, raising USD 8.1 billion on the NYSE, followed by Lyft’s USD 2.6 billion offering on NASDAQ and Pinterest’s USD 1.6 billion IPO, also on the NYSE.
While VC-backed capital raising hit new and dizzying heights, post-IPO performances brought investors' enthusiasm back to earth with a bump, as stock prices began to depreciate on a number of high profile, yet-to-profit tech listings, against an enlightened view of the company’s financials, path to profitability and cash burn. Concerns around inflated valuations of these types of listings caused investors to question whether private valuations gave an accurate indication of post-IPO performance.
In the future, investors will be more concerned with having transparency regarding a company's business plan and path to profitability for relatively early-stage companies. They could also opt to back more established names instead of high-promise unicorns.
A total of 302 IPOs were recorded, a 2% increase on 2018 by volume, and USD 61.5 billion was raised, a fall of 17% by value.
China and the US were the real drivers behind the jump in capital raising for VC-backed IPOs, as cross-border activity showed similar performances on PE exits. VC-backed exits from the US raised USD 25.9 billion from 67 listings, with China pooling USD 19.3 billion across 140 listings.
NASDAQ and the NYSE were the leading stock exchanges for PE/VC-backed IPOs, raising USD 17.9 billion and USD 17.3 billion respectively, while Shanghai also enjoyed an increase of 44% on last year, raising USD 11.6 billion.
In spite of market and geopolitical turbulence, demand for private equity backed assets remains strong and funds continue to have multiple paths to exit. With that demand keeping private asset prices high, potential public market risk combined with the underperformance of some recent IPOs and underwhelming pricing for some recent offerings makes a clean and definitive exit via trade sale or secondary buyout a more attractive option for many fund managers.
David Allen - Global Head of Private Equity
IPO activity slows down globally, ahead of a turbulent 2020.
Hong Kong unrest tempers listing activity, but value fares well enough due to mega IPOs
The Asia Pacific market was not able to fully rebuff the impact of the unrest in Hong Kong, which has seen the jurisdiction fall into recession for the first time in a decade. Overall activity has dropped significantly both in volume and value, magnified when compared to 2018's stellar performance.
More positively, the region's governments and stock exchanges have begun to show a change in mindset—and regulations—aimed at becoming more attractive to issuers, both domestically and internationally. Both the amount of capital raised and the number of IPOs overall fell to USD 90.4 billion from 776 listings, a drop from USD 109 billion and 927 listings in 2018.
Uncertainty will always influence the markets, with few major financial centers escaping unscathed this year. While the disturbances in Hong Kong did hamper activity to a degree, performance remained relatively stable – as the infrastructure and investor base was still reliably there for issuers. Alibaba is a good example of this. Going forward, we are set to see the ‘battle of the exchanges’ heat up, with recent regulation changes throughout the wider Asia Pacific region, coupled with the launch of the STAR market already luring listings away from, or at least providing issuers with more options in addition to, traditional venues such as Nasdaq and NYSE.
Asia Pacific Chair, Capital Markets
As a result, the Asia Pacific Cross-Border IPO Index fell by 7% to 24.5.
China led the way with 260 IPOs, 179 of which were domestic. Chinese domestic listings increased by 77% by volume, raising a total of USD 31.8 billion, a 58% increase by value. China’s STAR Market helped retain a number of domestic tech listings and was partly responsible for the strong performance there.
Other countries that kept their listings on domestic shores included South Korea with 92 IPOs, raising over USD 4.4 billion, an 84% increase over 2018; Japan with 90 IPOS, 89 of which were domestic, raised USD 3.3 billion; and India with 63 domestic IPOs, raising USD 2.9 billion, displaying a dramatic drop of 63% in volume of listings. This drop flies in the face of recent changes implemented by India’s market regulator, Securities and Exchanges Board of India, aimed at making it easier for issuers to list.
Leading cross-border issuing nations included China (all 81 listings went to Hong Kong), Singapore (all 13 listings went to Hong Kong), Malaysia (seven listings, out of which four went to Hong Kong, and the rest to Singapore), and the US (seven listings, five to Australia, two to Hong Kong).
Despite the unrest, Hong Kong remains the leading cross-border IPO destination, with 102 cross-border IPOs, down just 4% on last year and far outpacing Australia, next in line, with just eight. Despite the drop in IPOs, Australia saw an increase in cross-border capital raising, driven by US KKR Credit’s IPO, which raised USD 631 million, Ireland’s FINEOS Corp with USD 129 million, and Life 360 with USD 102 million.
Financials was the leading sector, raising USD 16.3 billion followed by Retail with a 64% increase in capital raising at USD 14 billion, buoyed by the Alibaba offering.
In addition, capital raised by High Technology increased by 12% over 2018. The sector raised over USD 10.5 billion from 143 IPOs, the largest of which was Beijing Kingsoft Office's USD 661 million IPO on the SSE STAR Market, and China's Megvii Technology USD 500 million IPO in Hong Kong.
Introducing the Shanghai-London Stock Connect
A partnership between the Shanghai Stock Exchange (SSE) and the London Stock Exchange (LSE), the Shanghai-London Stock Connect was created to enable eligible companies listed on the LSE to issue Chinese depository receipts, and conversely, to allow eligible companies listed on the SSE to issue London-listed global depository receipts to global investors. The first such listing was completed in July.
Brexit cloud rains on IPO activity; Aramco listing distorts the landscape
Although the Saudi Aramco IPO should boost capital raising in EMEA, Brexit and weak economic activity across the Eurozone resulted in a slow IPO market overall. As with elsewhere globally, most of the listings were domestic.
Volume dropped by 46% to 113 IPOs, while value remained static, at USD 45.6 billion, skewed by Aramco’s expected IPO. This status quo would not have been possible without the 10 mega IPOs in the region.
As a result, the EMEA Cross-Border IPO Index fell 36% to 10.8, the lowest of all regions.
90% of capital raising was accounted for by domestic listings, with up to USD 30 billion of that set to come from what could be the largest IPO in history, Saudi Aramco’s offering on the Tadawul. Without the Aramco listing, EMEA would see its poorest performance since 2012.
The sharp slide in the volume of listings was largely accounted for by a 71% slide in cross-border IPOs, with the decline primarily on the London Stock Exchange. There were only four cross-border listings into London, against 16 in 2018. The largest of these was the debut offering from the Shanghai-London Stock Connect, the USD 1.7 billion IPO of Huatai Securities, which performed strongly.
Domestic listings also fell significantly, again led by London, which saw just 23 IPOs from 55 in 2018. Euronext saw a 57% decline in domestic volume to nine.
There were, however, bright spots to be found through the region, most notably with the first international offering by a Saudi issuer, Arabian Centres Company, which listed on the Tadawul but completed the first offering to non-GCC investors. Another notable change in activity came from Italy, where there was a 50% increase in listings and a 47% hike in capital raising.
The Italian market has had a turbulent journey recently, but a change in leadership seems to have boosted issuer and investor sentiment, coupled with quantitative easing by the European Central Bank.
When it comes to sectors in EMEA, Energy and Power took the top spot for capital raised, unsurprisingly, with USD 20.1 billion, followed by Financials with USD 8.1 billion, down 23%. High Technology posted a 12% increase in value as a result of the USD 2.2 billion TeamViewer listing in Frankfurt and the USD 1.4 billion public debut of Trainline on LSE.
While activity levels were uninspiring, EMEA saw 10 mega IPOs, the highest of any region in 2019. Aside from Aramco’s IPO, these were led by Nexi SpA’s USD 2.3 billion Milan offering, the USD 2.2 billion TeamViewer listing in Frankfurt, France’s national lottery (FDJ) public debut, raising USD 1.8 billion in Paris and the USD 1.7 billion GDR offering from Huatai Securities.
While Brexit continued to pummel cross-border activity in the region, there were pockets of success among domestic activity – with a number of exchanges including London, Riyadh, Frankfurt and Italy playing host to billion dollar listings.
We are finally set to see the debut offering from Aramco, which is expected to rocket the Tadawul to the top of the board.
It’s been a real rollercoaster for the EMEA markets of late, but we can expect to see big things in 2021, as ongoing political and economic issues are finally put to bed, releasing pent-up demand.
EMEA Chair, Capital Markets
Tech listings boost domestic value, but all eyes are on performance
Domestic mega IPOs in the US took the spotlight in North America this year. In fact, all mega IPOs were domestic, significantly contributing to the 31% increase in domestic capital raising.
Overall, 346 issuers in North America raised USD 66.5 billion, a 13% drop in volume but a 4% increase in value. In line with global trends and helped along by the escalating US-China trade tensions, cross-border value declined sharply by 58% from last year to USD 8.4 billion from 67 issues, as the volume of high-value Chinese tech issues into the US fell. Boosted by listings from a number of tech companies and strong domestic interest, the domestic IPO market raised 58.1 billion, despite a 14% decline in IPOs.
As a result, the North America Cross-Border IPO Index score has fallen by 29% to 20.2. However, the region's score is the closest of all regions to the global weighted average of 19.5 for 2019.
We started the year with high expectations for a number of planned tech unicorn IPOs with possible record valuations. While a number of these unicorns completed their IPOs, several have seen significant price declines due to investor concern with their business models or path and timing to future profitability. As a result, we have seen a number of companies delay their IPOs in order to streamline and focus their operations, reduce costs and attempt to forge a path to profitability.
Despite this, domestic capital raising in North America hit its highest level since 2014 and we expect to see the region continue to buck the global trend well into Q1 2020 as issuers look to list ahead of the 2020 elections.
North America Chair, Capital Markets
High Technology retained its top spot for capital raising on North American exchanges helped along by the listings of Uber, Lyft and Pinterest, each of which raised over USD 1 billion during the year. The sector's overall capital raising increased by 12% to USD 21.1 billion. Financials, with USD 20.6 billion and Healthcare at USD 8.7 billion came in second and third respectively, in terms of overall IPO capital raising in North America.
Top listings in the region came from Uber’s USD 8.1 billion listing on the NYSE, Avantor’s USD 3.3 billion IPO also on the NYSE and Lyft’s USD 2.6 billion debut on NASDAQ.
While issuers and investors enjoyed a relatively stable market, regardless of the global macro-environment, there was an element of urgency for some companies, who wanted to debut and raise their capital ahead of both the expected downturn in the markets and the US elections. With the US elections set for Q4 of 2020, it is expected that North America will continue to experience this steady flow of public debuts well into the first half of next year.
The future of IPOs?
Slack and Spotify may be the only high profile direct listings we have seen on the market so far, but some see their success as an indicator of changes in the future of the traditional IPO route to market. With Airbnb rumored to be exploring a direct listing next year, US stock exchanges have considered changes to incentivize listings on their venue.
Direct listings so far have appealed to those issuers who did not need fresh capital, did not wish to issue new shares, or simply did not want to incur the costs associated with underwriting banks, notoriously significant. They also allow the company and existing shareholders to access immediate liquidity, remove preferred access from bankers and—increasingly of importance—allow for market-driven pricing.
As with the likes of Hong Kong and China, 2019 has heralded innovative changes amongst stock exchanges and governments, with jurisdictions increasingly recognizing the need for diversification and modernization in a changing IPO landscape.
In November, the NYSE filed paperwork with the US Securities and Exchange Commission that would see companies able to raise capital as part of a direct listing. While the SEC rejected this proposal, its filing shows that exchanges are identifying the need to innovate and proactively react to changes and trends in the market.
Political unrest snuffs out activity
Moribund activity in the Latin American IPO market has prompted a drop in both the value and volume of listings in the region by a third with political unrest in nearly all member countries preventing potential listings.
A total of USD 3.5 billion was raised during 2019, down 33% on the year, while the total volume of deals fell by 30% to seven.
Despite the decline in numbers and heightened economic and political events affecting much of the region, countries such as Brazil, Colombia and Peru are holding their own at a macro level – with companies that continue to perform well, undeterred by market issues.
Overall, there has been a notable improvement in the way business is being conducted over the past few years – which we can expect to have a positive impact on future economic growth.
Latin America Chair, Capital Markets
All activity was domestic with Brazil and Chile witnessing the only listings. Brazil saw the number of IPOs increase to five from three in 2018, led by Neoenergia, which raised almost USD 1 billion.
Chile saw activity in the first half of the year, including the mega IPO from Cencosud Shopping in Santiago, which raised USD 1 billion. Since then, increased civil unrest has kept issuers on the sidelines.
In the wider economy, Brazil is benefiting from the recent pension reforms, which increased the pension age from 55 to 62, in a move that will save the country USD 149 billion over the next 10 years and put the economy on a more sustainable footing.
Argentina, whose economy and market was expected to blossom in 2018, remains in recession and crippled by vast levels of debt. With a new president coming into power, concerns have been expressed around his lack of clarity on economic prioritization, leaving Argentina susceptible to further economic woes.
Looking ahead, Latin America could be set to face a more distressed 2020 if, as forecasted, the global economy experiences a downturn.
Taking a closer look at some key IPOs from 2019.
Huatai Securities Co., Ltd
Issuer: Huatai Securities Co., Ltd
Regional Focus: EMEA/AP
Baker McKenzie advised as counsel in connection with the issuer's offering of global depositary receipts (GDRs) and the listing of the GDRs on the London Stock Exchange – the first transaction on the Shanghai-London Stock Connect segment of the main market of the LSE.
The Shanghai-London Stock Connect mechanism directly links the LSE and SSE and is a strategic component in China's capital market reforms. Through cross-listing GDRs, Chinese domestic firms can gain access to one of the deepest pools of international capital in the world, expand their shareholder base and raise foreign capital directly on the London market.
The reverse of that mechanism, the London-Shanghai Stock Connect, allows non-Chinese companies to cross-list Chinese depositary receipts (CDRs) in Mainland China and access Chinese investors.
- Huatai Securities raised USD 1.7 billion on the LSE in June
Clifford Chance advised on English, US and Hong Kong law, Fangda Partners advised on Chinese law.
Linklaters and King & Wood Mallesons acted for the underwriters.
JP Morgan, Huatai Financial Holdings and Morgan Stanley acted as global coordinators and joint bookrunners. Credit Suisse and HSBC were also joint bookrunners.
The first transaction to raise capital on the Shanghai-London Stock Connect segment of the LSE main market
The first time that international investors have been able to access China A-Shares through an exchange outside Greater China using international trading and settlement prices
Our first-hand involvement in the transaction gave us a unique and in-depth insight into the opportunities and challenges brought by the Shanghai-London Stock Connect mechanism, uniquely placing us to assist Chinese corporates to launch their GDRs on the Shanghai-London Stock Connect segment of the LSE.
Issuer: ESR Cayman Limited
Regional focus: Asia Pacific
We advised Stichting Depositary APG Strategic Real Estate Pool and SK Holdings Co., Ltd. as pre-IPO investors of, and APG also as a shareholder which has sold part of its stake in, ESR Cayman Limited in its IPO on the Main Board of the Hong Kong Stock Exchange.
ESR has the largest Asia Pacific-focused logistics real estate platform
ESR postponed their listing in June, citing unfavorable market conditions – but market feedback encouraged a second attempt, with shares traded on the exchange from November 1
Latham & Watkins acted as issuer’s counsel
Morgan Stanley, Deutsche Bank AG, Citigroup, Credit Suisse and Goldman Sachs acted as joint global coordinators
The third largest IPO on the Hong Kong Stock Exchange in 2019
The IPO performed well in the face of the unrest in Hong Kong – with some saying its performance helped the market to claw back issuer and investor confidence
Exercised its overallotment option, to increase its offering by 15%
Helping clients overcome the challenges of competing in the global economy.
Global Chair, Capital Markets
EMEA Chair, Capital Markets
Latin America Chair, Capital Markets
Asia Pacific Chair, Capital Markets
North America Chair, Capital Markets
Associate Director, Transactional Groups
Baker McKenzie’s Cross-Border IPO Index is a composite measurement of the strength of cross-border IPO activity relative to overall IPO activity. The index calculation is based on an analysis of several IPO data elements, including capital raised, deal volume, stock exchanges involved and issuer home jurisdictions. All data underlying calculation of the index are sourced through Refinitiv. Correct as of 27 November 2019.