Half of this year’s big IPOs are underwater

Half of the companies that raised more than $1 billion in initial public offerings this year are trading below their listing price, despite strong stock markets around the world.

IPOs that have been busted include some of the most popular names on the list, such as UK food delivery app Deliveroo, alternative food maker Oatly, and Indian payments giant Paytm.

Its poor performance has raised questions about the pending valuations of companies by major investors such as SoftBank and Warburg Pincus and major insurers including Goldman Sachs and Morgan Stanley.

Dealogic data shows that 49 percent of the 43 IPOs that raised $1 billion or more this year in London, Hong Kong, India and New York are trading below their issue prices.

By comparison, of the large IPOs listed in 2019, about 33 percent were below the issue price a year after entering the market, while 27 percent of those priced in 2020 were in the red 12 months later. from trading.

The dismal performance of stock prices comes despite a critical year for global stock markets, with the S&P 500 index posting a 24 percent return and a record-breaking record for initial public offerings, which have raised $330 billion so far this year, according to EY.

Deliveroo shares are down 26 percent on the first day and are still below their listing price © Benjamin Girette / Bloomberg

Paytm fell more than 40 percent in its first two trading days and suffered the biggest first-day drop of any big listing this year, making it one of the worst debuts in the history of the Indian stock market. The fintech group, which raised $2.5 billion and is valued at $20 billion, now has a market capitalization of $15 billion.

Shares of Deliveroo fell 26 percent on the first day and are still below its listing price, while New York-listed shares of Chinese car delivery app Didi Chuxing are down more than 40 percent.

The effects of Beijing’s crackdown on technology, which began after Didi’s New York listing despite warnings from regulators, have been felt in global stock markets, where all four of this year’s $1 billion listings have plummeted in Hong Kong.

“There is a lot of glut in the market right now,” said Raghu Narain, head of Asia Pacific investment banking at Natixis. While bankers typically advise companies to avoid setting a price too high in order to avoid an awkward day in the fall, “often issuers want to go out with a big company,” he said.

Bankers in the Paytm deal said the company was determined to set a new record for the Indian IPO, which deterred even the most conservative investors for only so long. This means that some hedge funds received more provisions than expected and then disposed of the shares.

Goldman led 13 deals that raised more than $1 billion this year, but nine are now in the red, including Didi and US retail platform Robinhood. Six of the 14 deals led by rival bank Morgan Stanley traded below the IPO price, including Paytm.

Private investors are also increasingly eager to sell under pressure for higher returns, according to analysts. James Thom, senior investment manager at Abrdn, said pressure from major backers was a “large part” of the high valuations carried by the big deals this year.

Robinhood app on a smartphone. Shares on a US retail stock trading platform fell 10% last month © Tiffany Hagler-Geard/Bloomberg

Investors have pumped more than $2 trillion into private equity funds in the past decade, searching for higher returns than in the public markets. However, since 2009, returns on US public equity have actually matched those from US acquisitions at about 15 percent, according to Bain Consulting.

This parity has put pressure on private equity funds to recycle their capital faster to move on to the next deal.

Richard Cormack, co-head of Emea capital markets at Goldman, said the broader world of IPOs was doing well, even if there were “clearly outliers to the downside.” “I do not agree with the accusation that there was collective mispricing,” he added.

James Fleming, global co-head of capital markets at Citigroup, said: “Obviously there have been a number of underperforming IPOs this year. As policy makers have gotten more hawkish and the rally in prices has become more pronounced, we’ve seen a reduction in risk. in high-growth companies and a shift in preference from growth to value. This has caused a lot of stocks to fade, not just IPOs.”

But he noted that this did not stop the flow of new shares being issued. “We have never seen more than a trillion dollars worth of stocks worldwide in a year. Then last year we had 1.1 trillion dollars of shares issued during Covid. I thought we would never see those numbers again, and here we are approaching 1.5 trillion dollars on Christmas Thanks – these are extraordinary numbers.”

Additional reporting by Chris Campbell in London

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