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Making hay: Issuers take advantage of sunny summer window but concerns linger over chillier autumn

Equity capital markets in Europe are heating up in a wave of issuance before the summer break, but advisers are less optimistic about the end of the year as tailwinds push benchmark IPO candidates such as Ampere into 2024.

Three large European IPOs are on the verge of pricing with two, the IPOs of Thyssenkrupp’s [ETR:TKA] hydrogen division Nucera and the listing of Romanian hydroelectric power generator Hidroelectrica set to be Europe’s largest 2023 IPOs. Emerging markets-focused CAB Payments completes the trio, with a targeted London listing.

Both Hidroelectrica and Nucera are oversubscribed with sizeable cornerstone orders in the book and, according to deal notes seen by this news service, are coming around the middle of their price ranges, ending a succession of rock-bottom priced deals.

However, investor discount demands remain high with Thyssenkrupp having to dramatically reduce its valuation hopes.

Late last week, Renault’s [EPA:RNO] CFO Thierry Pieton said that while the carve-out of its electric vehicle making division Ampere will be completed in 2H, the most favourable window for an IPO would be 1H24; later than the originally planned 2H23 window.

Renault is not blind to the market and the discounts required for IPOs to work in Europe, said two sources close to the deal. “I think a few issuers will be thinking about kicking the can down the road,” one added. Although Renault doesn’t know what kind of market it will face in six months, it hopes the EV unit will drive high returns for investors for many years, the second source added.

Renault did not comment on the reason behind the Ampere IPO’s delay.

Europe’s IPO misfortunes are in reverse correlation to established equity indices, as well as the blocks market. The S&P 500 is up almost 30% since last October while the Stoxx 600 has risen by around 20%. Secondary block volumes in Europe are up more than 47% year-to-date, according to Dealogic data.

 While the live listings will bump up Europe’s numbers, should they be successfully priced, it can’t be escaped that during a time of equity market bullishness, the continent has had its worst start to an IPO year in a decade and there is no EUR 9bn Porsche [ETR:P911] in sight to save the second half.

While the IPO market is functioning, and in a better spot than it was earlier this year, persuading issuers to sell at larger discounts remains a challenge for banks.

Door opens for bank blocks

Secondary sell-downs in Europe remain strong and after a hiatus, bank blocks are back on the agenda as seen with the EUR 480.48m trade in AIB Group [DUB:AIB] by the Irish government.

An AIB block was predicted as likely by this column in March as part of a wave of state sell-downs in banks, following increasing demand from investors for exposure to the sector.

Alongside AIB, ECM Pulse reported that there was market chatter around NatWest [LON:NWG], ABN Amro [AMS:ABN] and CaixaBank [BME:CABK]. In the private realm, there was also a possibility that Cerberus Capital Management could continue to exit German banks Deutsche Bank [ETR:DBK] and Commerzbank [ETR:CBK], last sold in early 2022.

Credit Suisse’s demise in March scuppered those expected deals, but appetite may be coming back. As the first blue-chip bank block since the volatility spike earlier this year, AIB heralds renewed demand for the sector, said a source close to the deal.

“Banks are an area to monitor because some of them are driving great performance from high interest rates,” said an ECM banker.

While the sun shines

“Markets are fragile,” said the first source adding “while there is no reason things should fundamentally change, I don’t think we are on very solid footing right now.”

On Friday, equity analysts at Bank of America wrote in a note that global growth forecasts are weakening and as such they predict lower equity markets. Uncertainty over the global economy is leading to reticence towards IPOs vs blocks, the ECM banker and an ECM investor agreed.

Investors are thinking about performance in a difficult market and, unlike IPO issuers looking for pricing perfection, buysiders seek enough of a discount to give them comfort that the stock can withstand volatility. It is less of an issue for blocks given the higher liquidity.

The bull market is also causing a headache for investors and bankers; there is an expectation that investors at some point will turn defensive and seek to protect 2023 performance into the end of the year, especially if the global economy weakens. This could cause market drawdowns in the last months of 2023 and a more difficult environment for ECM.

Issuers are being urged to take opportunity where they can.

Sources pointed to Aedifica [EBR:AED], the Belgian care home operator which completed a EUR 386m rights issue last week, as a front-footed example of an issuer biting the bullet and raising primary equity capital when it could, rather than at an ideal share price.

In ECM, no window is ever open forever.