Powered by Dealogic data, ECM Highlights reviews ECM activity across Americas, EMEA and APAC in the last quarter and year-to-date. All data updated as of 18 December 2023 (5pm IST). Find more on the latest and upcoming ECM activity at Dealogic | ECM.

Global ECM: Scratch that

Last year this news service finished a dreadful 2022 with our final highlights titled “A year to forget”. After twelve months, it might be better to scratch this one from memory as well.

Despite the hope that equity capital markets issuance was on the cusp of a heroic rebound, the fourth quarter offered little sign that global ECM practitioners have adapted to a higher-for-longer rate environment.

Global ECM volumes stood at USD 597bn year-to-date (18 December 2023), slightly above final volumes of USD 594bn in 2022, showing that global ECM is yet to escape its rate-hike slump. In 4Q, issuance of USD 123bn YTD was well below the USD 137bn in 4Q22 and marked the lowest quarter for ECM issuance since the fourth quarter of 2011 (USD 112bn).

The YTD total issuance across deal types stands well below the USD 1.6tn and USD 1.2tn of 2021 and 2020. Even if those pandemic years might be credited as over-exuberant aberrations fuelled by COVID-19 monetary stimulus, the totals for 2023 were still far behind almost any other ECM year in the past decade.

This year will be another disappointing one in global ECM annals regardless of how one cuts it. But experts argue there was a lot to contend with.

“The 2023 equity market tagline is ‘resilience’,” said Paul Abrahimzadeh, co-head of equity capital markets in North America at Citi. “Equity markets traversed geopolitical conflict in Ukraine and the Middle East, a US regional bank crisis, the US near-breach of the debt ceiling, the dramatic rise in interest rates – and yet the S&P 500 is up >20% while the Nasdaq is up >40% YTD,” he noted.

IPO no-show

Consequently, IPOs were missing in action throughout the year. Volumes of just USD 20.2bn in Q4 compounded misery onto a tough year when IPO volumes finished at USD 119bn, by far the worst showing since the financial crisis of 2008 (USD 106bn) and well below the USD 176bn of last year.

A lack of new listings in EMEA and Asia Pacific (APAC) meant both regions finished trailing their 2022 totals, although a pick-up in US activity spared Americas’ blushes, with the region surpassing its FY22 figures, falling only slightly behind Asia Pacific in FY23 deal volumes.

Despite APAC coming top of the global league tables, US exchanges were the top market for all ECM deals in FY23 at USD 208.2bn of issuance volume, almost double that of its closest competitor, mainland China, which had volumes of USD 115.1bn. Issuance this year helped the US reclaim the top spot from mainland China, which finished top of the pile in 2022.

US volumes grew from USD 144bn in FY22, while mainland Chinese volumes shrank from around USD 179bn last year.

Japan and India were the next two most popular exchange nationalities for deals in 2023, with issuance of USD 35.7bn and USD 26.4bn, respectively.

London’s death as an ECM hub may have proven exaggerated, with the UK being the top exchange nationality in EMEA in 2023, with deal volumes of USD 21.8bn, driven mostly by follow-on activity including three substantial sell-downs in London Stock Exchange Group [LON:LSEG] itself worth USD 8bn.

“In 2024, global equity capital markets will come out of the gridlock that has characterized the past two years, and we expect to see an increasing number of issuers bring deals to market,” according to Abrahimzadeh.

In the meantime, follow-ons were the top deal type for global ECM at USD 376.2bn. While this is typical in any given year, it was also up on its 2022 volumes of USD 342.5bn.

The unsung hero of 2023 was the global convertible bond market, which passed the USD 100bn mark, with volumes of USD 101.5bn up from USD 75.4bn the year before. Volumes of USD 19.8bn in 4Q were down 6.5% year-on-year, but momentum was enough to bring CBs back into focus as an issuance class of note in 2023.

Americas: Pipe dreams

ECM in the Americas faced a bumpy ride over 2023 and advisors hope that an extensive pipeline of well-positioned candidates brings better fortunes in 2024.

The last quarter saw USD 51.3bn in deal volume across 323 deals, an improvement on the same period last year, but a further step in a downward trajectory from 3Q. After last year’s drop, this marks the second-worst-performing 4Q since 2019.

IPOs, recording USD 3.8bn across 36 deals in Q4, outperformed 4Q22 but fell short of the USD 9.3bn seen in 3Q23, powered by Softbank-backed ARM [NASDAQ:ARM], Instacart [NASDAQ:CART], Birkenstock [NYSE:BIRK] and Klaviyo’s [NASDAQ: KVYO] IPOs.

Noteworthy 4Q US IPOs included Hamilton Insurance [NYSE:HG] and Cargo Therapeutics [NASDAQ:CRGX], despite pricing at or below their targeted initial price ranges.

“The biggest disconnect in valuation post-pandemic was in the US, particularly in secular growth verticals like tech and healthcare which are most sensitive to rising rates. Valuations were impacted dramatically to the downside and are now starting to gain better footing as rates recede,” said Citi’s Abrahimzadeh.

Regardless of the sobering stats, market practitioners find solace in stabilising macro conditions and a growing pipeline for next year.

“The backdrop is getting better and markets are improving,” said David Koch, co-head of capital markets at Brown Gibbons Lang & Company. “A drop in volatility and interest rates staying down will be conducive to capital markets activity.”

Koch expects most IPO deals to come in the first half of the year to avoid macro disruption coming from the US election. “If sellers and issuers get valuations right, we will have a very robust first half. As much as USD 25bn-USD 30bn could come to market in 1H,” he said.

Phil Haslett, co-founder of EquityZen, a platform for buying and selling shares of pre-IPO companies, noted from a numerical standpoint that about 1200 companies worth over USD 3.8tn globally are sitting in the wings, while hundreds of unicorns have not raised money since 2021, with cash reserves thinning.

In terms of sectors driving this pipeline, Koch anticipates a split between 40% technology and around 15%-20% healthcare.

Secondary market activity recorded USD 146.4bn for the year, higher than 2022’s USD 111bn. Follow-ons in 4Q reached USD 35.1bn from 259 deals, a lower figure than the third quarter.

In convertibles, 2023 achieved USD 57.9bn from 167 deals, outperforming last year’s USD 32.8bn from 102 deals. The last quarter grossed USD 12.4bn from 28 deals, topping the same period in 2022 but marking the slowest quarter for the class in 2023.

“The way things are going, 2025 is set to be a record year for ECM issuance,” ventured Abrahimzadeh. 2022 and 2023 will likely be remembered as write-offs from a volume perspective, with a rebound in 2024 and a true return to normalized issuance activity in 2025,” he added.

EMEA: Follow that 

EMEA IPOs grappled with heightened volatility in the last quarter of the year, as a wave of postponements prompted renewed caution among issuers.

Annual combined issuance reached USD 128.7bn across 1387 deals, the lowest since 1996. Last year, deemed an annus horribilis as well, had closed with a higher USD 136.3bn deal volume from 1373 deals.

In Europe, the long-awaited Q4 IPO candidate CVC pushed back its public debut, the third cancellation after the dramatic postponement of two live European IPOs: German defence contractor Renk and French software firm Planisware. The disastrous market reaction to a profit warning for one of the 2023 IPO class, CAB Payments [LON:CABP], added to the sense of malaise.

IPOs in Europe in YTD 2023 were down to USD 11.3bn in deal volume compared to 2022, when it stood at USD 16.9bn; in EMEA, YTD deal volume stood at USD 22.4bn across 196 listings, down from USD 41.6bn in 2022 from 286 deals. It marks a new low for primary issuance in over a decade, with the previous annual lowest mark going all the way back to the USD 18.1bn raised in 2012.

The fourth quarter of 2023 saw only USD 6bn in IPO deal volume, down from USD 6.6bn in the third quarter.

The Middle East was a late bright spot, with issuers making the most of the last available window to print IPOs, after a comparatively slower market than the buoyant 2022. UAE’s Dubai Taxi [AED:DTC] came to market with a USD 314.7m-equivalent IPO which marked a return to state privatisations in the GCC and was covered at a staggering 130 times – a record for Dubai. UAE-based PureHealth [AED:PureHealth] was the largest deal in the region, raising USD 986m in an institutional offering also covered 54 times and a retail offering covered 483 times.

Despite the European gloom, Andrew Briscoe, head of the EMEA ECM syndicate at Bank of America, said there is a “healthy IPO pipeline” for next year.

Sell-downs easier sell

Follow-ons largely stole the show. The blocks market witnessed some late-year opportunities from AIB Group [DUB:A5G] and Greece’s Greek National Bank [ATH:ETE], as European states sped up sales of financial institutions’ stocks.

This last quarter alone produced similar deal volume figures to 3Q, both standing at slightly above USD 17bn in deal volume, but still well below the almost USD 30bn seen in the second quarter.

In 2023 overall, more than a thousand transactions pushed follow-on deal volume to USD 92bn, up from USD 87.7bn in 2022. There is a long way to go back to the hundreds of billions worth of deals of years prior – USD 184.8bn in 2022, USD 192bn in 2017, USD 205bn in 2014 are a few examples of past follow-on glory. Sponsor-backed activity, though, recorded an uptick compared to 2022, with more to follow in 2024 as sponsors look to shed their holdings.

“ABBs have been a huge part of the issuance; there have been around 10 deals above USD 1bn in Europe this year, with a number of those bigger than USD 2bn” Briscoe said, adding he expects the trend to continue next year.

Equity-linked also spelled some good news. A window for convertibles opened in the fourth quarter, as hungry investors flocked to buy paper despite some reservations around deal terms. November has been the best month for issuance in 2023. Schneider Electric [EPA:SU] and Sibanye-Stillwater [JSE:SSW, NYSE:SBSW] both launched new convertible bonds, while RAG-Stiftung sold a EUR 500m exchangeable bond into Evonik Industries [ETR:EVK].

Equity-linked deal volume on a yearly basis stood at USD 14.2bn this year, up from 2022’s USD 6.9bn. While still below previous buoyant years, an uptick is expected in the coming quarters as a wall of pandemic-era debt maturities fast approaches.

APAC – It is the economy! 

At this very same time in 2022, ECM dealmakers in Asia were hoping a speedy recovery in the global economy would follow China’s swift move to dismantle its three years of zero-COVID policy.

Fast forward one year and those wishes didn’t come through. Worse still, as of 18 December, the Shanghai Shenzhen CSI 300 Index had shed 14% this year, hitting a four-year low. In Hong Kong, the Hang Seng Index has given up a steeper 16% to 13-month lows. Both lagged the MSCI Asia Pacific Index’s 3.4% gain over the same period.

“Sentiment is just so bad,” said a convertible bond banker in Hong Kong. Despite Beijing’s efforts to put a cushion to its faltering property market, effects have been short-lived at best. “What is missing in the equation today? It’s the economy.”

Long-only investors, a key component to get billion-dollar deals done, were largely absent in the first half. But they have become slightly more active, said a Hong Kong-based ECM syndicate banker while warning that the Hong Kong/China IPO markets may not reopen until the second half of the year.

John Lee, vice chairman at UBS Greater China, expects equity capital markets to improve in 2024 assuming rates have peaked, China may fork out more specific stimulus measures, and that regulators will speed up IPO approval process into the second year of the new listing regime.

That said, investors will likely continue to scrutinize companies closely, Meng Ding, partner at Sidley Austin LLP, emphasized.

“The ECM community will place more emphasis on issuers’ profitability potential, rather than on outsized growth speed, which had dominated the global capital market for the last decade,” he said.

“Rather than pricing a deal based on its 3-5 year forward growth forecast, investors these days are focusing on 1-2 years profit visibility”, the ECM syndicate banker said.

Electric vehicles, AI-related concepts, and mass consumer staples will likely be the most active sectors in Hong Kong IPO market next year, bankers said.

For 2023, China remains the region’s largest ECM hub, raising USD 115bn in 2023, off 35% from the USD 179bn in the previous year. Hong Kong printed USD 19.2bn worth of ECM paper, down 28% from USD 26.8bn last year.

South Korea is the only major APAC country that has fared worse than Hong Kong and China, raising USD 9.1bn worth of ECM deals, a 48% plunge from last year’s USD 17.45bn. But that’s mainly because of a short-selling ban through to June 2024 imposed by the government.

Unlike in 2022, when deal activity was down across the board, there have been silver linings. Japan’s tougher regulations intended to improve shareholder returns, India’s rapid catch-up along the global supply chain and Indonesia’s strategic export bans on some natural resources have chipped into the region’s deal activity.

When excluding China’s domestic A-share deals, the APAC region priced USD 126bn worth of ECM paper, slightly more than the USD 113bn recorded in 2022.

Japan rose to the region’s second spot, raising USD 36bn from IPOs, follow-ons and equity-linked bonds, more than triple last year’s USD 10.4bn. India also took over Hong Kong, being the region’s number three with USD 26.4bn raised mainly from IPOs and follow-ons, up 27.5% from 2022.

A low ending note 

With the exception of Japan and India, IPO activity elsewhere (A-shares excluded) was next to non-existent in Q4.

The HKD 3.48bn (USD 446m) IPO of WuXi XDC [HKG:2268], an integrated pharma services provider, is one of the very few attention-worthy Hong Kong deals in the fourth quarter. The stock has risen about 40% since its debut.

J&T Global Express [HKG:1519], a courier service based in Indonesia, raised USD 501m from a Hong Kong listing, with shares up 13% since its debut in late October.

Otherwise, Japan and India dominated the region’s IPO scene. Kokusai Electric [TYO:6525], which raised USD 724m from a Tokyo IPO at the end of October, has rallied 55% since. Tata Technologies Ltd. [NSE:TATATECH], an IT products and services provider, has more than doubled since its USD 365m IPO in November.

Advisors are split when it comes to next year’s prospects for the region. While the pipeline is quite healthy, issuers are still very conservative and look for pre-IPO private funding rounds instead, one ECM banker said.

Hard-tech sectors including agricultural or robotic manufacturing could be a key theme next year as both are quite mature to commence commercialization.

“Investors are no longer into ‘fancy stories’, instead keen on company’s solid production and innovative technology that could allow them to be industry leaders,” said a second ECM banker.

Top APAC Deals (excluding China’s domestic A-Shares)

Japan has been one of the most-active markets for follow-ons throughout the year, standing out not only by deal count, but also deal size.

Including the USD 4.7bn offering of secondary shares in Denso Corp [TYO:6902], an Aichi, Japan-based auto parts supplier, Japan is expected to account for the four largest follow-on offerings of 2023.

In the equity-linked world, it was also pretty much a Japan-solo quarter, except for a few refinancing notes in Taiwan, China and Vietnam.

Bankers are trying to manage their expectations for 2024, after a disappointing 2023. “I don’t think things will massively improve,” said an ECM banker.

But the first banker noted that as rates are likely to stay elevated for longer, this in theory should favor the equity-linked bond market.

Rates aside, it also takes favorable share prices to launch a deal. “We don’t need the market to be great for entire year, we just need good windows, not just one or two days, but a few weeks, then we can push deals out,” he said.

by Samuel Kerr in London, Cristiano dalla Bona in New York, Troy Hooper in Los Angeles, Perris Lee in Taipei, Ka Chun Wong, Eva Ng and Ellen Chen in Hong Kong, with analytics by Raj Saiya in Mumbai