IPO, block trade delays likely if global stock market volatility persists
Postponements of initial public offerings and block trades are widely expected after a volatile start to August in global capital markets, according to market advisers.
Bankers expect that several IPOs which were slated for early September and the autumn window could be pushed into next year.
The week began with sharp stock market declines globally, though these losses were partially reversed following gains in today’s trading session (6 August). Implied S&P 500 volatility on Monday spiked to levels last seen during the 2020 coronavirus pandemic and remained elevated ahead of the opening of cash equities trading in New York today.
US equities are rapidly re-calibrating and resetting lower, said Paul Abrahimzadeh, Citi’s co-head of ECM North America. How these factors play out will directly impact the extent to which US equity capital markets rebound in September, he added.
“September had been expected to represent one of the most active issuance months year-to-date,” said Abrahimzadeh.
“However, if equities remain under pressure post-Labor Day, issuance could be deferred into later this year or 1Q25,” he added.
Issuance pause
IPO issuance in the US has been strong during 2024, up 73% in the first half, with listings of Lineage Logistics [NYSE:LINE] and KKR-backed OneStream [NYSE:OS] among the more recent highlights.
But activity could now come under pressure, an ECM advisor said, confirming discussions with clients were still ongoing, “but the timing and tone have shifted.”
Shares in several major technology companies have been particularly hard hit in the stock market sell-off in recent days. Tech bellwether Nvidia opened 14% lower yesterday before recovering some of those losses to close the session down 6%. The stock is 14% lower in the first few days of August through yesterday’s close.
“It’s the perfect storm,” said another banker, citing weak economic indications in the US and the correction in tech stocks. Investors will steer clear of technology as a theme while the uncertainty persists, the banker added.
“We were already having discussions about pushing IPOs into next year and this makes it a certainty,” the banker said.
The window between September and October was expected to see decent activity, with a likely slowdown timed for the US presidential election, an ECM lawyer said. With the latest developments, it is increasingly evident that most of the higher profile deals won’t be executed before Q1 or the first half of 2025, he said.
Companies including KKR-backed Solera, StubHub and Cerebras are deals expected to hit the US market in the upcoming IPO window. While StubHub said it would launch in September, there are as yet no indications of plans for either Solera and Cerebras.
In Asia, the roller-coaster ride has seen issuers and investors pause to contemplate their next moves.
“In the context of multiple global macro risks emerging recently, we see Mainland China as a relative defensive, especially since many of the country-specific risks appear to have been priced in already,” said Sunil Tirumalai, global emerging market chief strategist at UBS.
Meanwhile, European issuers remain unperturbed by the recent volatility, said a European ECM lawyer.
“We’re not seeing issuers pull back because of the volatility and our listing pipeline has not been affected,” the lawyer said.
“In the UK, the FTSE is still up compared to last year, and so are most European exchanges.”
There has been a long-term ongoing correction in the US and this has been priced in, the lawyer added.
Investor appetite for equities remains strong because of pent-up demand following a period of sluggishness, another European ECM lawyer noted.
“While retail investors might take flight because of the volatility, long-term investors are still committed,” the lawyer said.
But a European ECM banker warned that if the volatility continues until the end of August “the 4Q24 window will be a washout.”
Block trades and convertible bond issuance will also be affected in the near term, the banker said. Several follow-on deals that were expected to hit the market this week have now been paused because of the volatility, he added.
Keep calm
West Riggs, head of ECM at Truist, called for less panic. US jobs numbers posted on Thursday by the Bureau of Labor Statistics were weaker than expected but not alarming, he noted.
Some 60% of companies reporting second quarter earnings announced positive revenue updates, the banker said. Companies in the S&P 500 had so far reported double-digit average year-over-year earnings growth, making it potentially the best quarter on this metric since Q4 2021.
“None of that sounds like alarm bells to me,” Riggs said.
His team’s message to client issuers was that corrections “are normal and happen.”
“We won’t see a flood, but issuance will set the scene for a very active 2025,” he said, especially when it comes to software and fintech.
Dramatic swings in markets over the past week have led to calls from some commentators for faster interest rate cuts from the Federal Reserve.
Abrahimzadeh described a “whipsaw of expectations” for FOMC rate cuts, as investors increased bets the US central bank will be forced to move more quickly on interest rate reductions.