2021 was an electric year for initial public offerings (IPO), with record-breaking deal volumes and revenues being recorded around the world. Despite the world being populated by more unicorns than ever before, IPO volume this year is struggling under the weight of a widespread economic downturn that’s halted the market in its tracks.
It’s worth noting that IPO volume isn’t being driven by the shortcomings of startups in recent months. In fact, we saw 1,000 unicorns populate the world for the first time. Since this landmark figure, we’ve seen far more businesses with valuations in excess of $1 billion emerge than ever, with some 1,284 in existence at the time of writing.
However, one of the key reasons why the world’s unicorns are growing at a rapid rate is that far fewer businesses are willing to lose their unicorn status by becoming a publicly traded company.
As Bloomberg data shows, IPO proceeds in Q1 2022 were at their lowest since the initial emergence of the COVID-19 pandemic, with volumes falling way below $100 billion for the first time since Q3 2020.
Although decreases in SPAC (Special Purpose Acquisition Company) volumes have contributed to this downturn, the wider IPO market itself has been in disappointing form. On a global scale, IPO deal volume in Q1 2022 slowed by 37 percent in comparison to Q1 2021.
Although Asia has seen a flurry of tech listings in general, the region has struggled to buck a negative wider trend. In Hong Kong, new listings volumes have fallen some 90 percent to a nine-year low, owing to China’s ramping up the regulatory frameworks for businesses ready to go public. This drying up of listings is a cause for concern among Hong Kong’s investment banks, all of which make around one-third of their revenue regionally from equity capital markets. The trend also spells danger for the territory’s status as a global leader in finance.
In total, just $2.1 billion has been raised in 2022 via IPOs and secondary listings in Hong Kong. When compared to the $20.7 billion raised over the same period in 2021, the figures make for the slowest beginning to a year since 2013, according to Refinitiv data.
“One of the reasons for the IPO market in Hong Kong falling so sharply is the deteriorating financial performance for most of the applicants in the previous financial year, and it is possible that will be the case for the first half of the current year too,” Frank Bi, a partner at Ashurst LLP, a London law firm with a global reach, explained to Reuters.
Sentiment throughout Asia toward IPOs has been falling in 2022, with a number of deals being put on ice or scaled back.
At the beginning of May, a flurry of three offerings were withdrawn in South Korea, with the companies blaming difficulty in obtaining valuations as a leading cause. Combined, the deals may have been worth as much as $1.19 billion.
In India, Life Insurance Corp’s $2.7 billion share sale had its final size reduced by 60 percent as investors opted against taking on more risk in the wake of Russia’s invasion of Ukraine. Elsewhere, in Vietnam, an electric vehicle firm mulling a listing in the U.S. markets announced that its debut would be shelved until 2023.
As geopolitical tensions in Eastern Europe impact markets, appetite for IPOs has dwindled on a global scale, leading to just $996 million in proceeds having been raised throughout Asian exchanges in the month of May — representing an 80 percent drop in comparison to the same stage last year.
Citing China’s regulatory issues with firms listing both domestically and overseas, Maxim Manturov, head of investment advice at Freedom Finance Europe noted that in March “the biggest drop in Chinese shares since the 2008 crisis was seen in US trading. The main reason for the collapse was investor fears over the delisting of some companies and the threat of a Chinese military conflict with Taiwan.”
“The Chinese regulator has instructed its tech giants (Alibaba, Baidu, JD, Pinduoduo, NetEase) to disclose detailed auditing information to avoid delisting in the US. The China Financial Stability and Development Committee has promised investors to maintain stability in the markets, including those companies with foreign listings.”
Underlining the loss of appetite for IPOs is the weakening of the SPAC market in Asia, with just one SPAC being launched in Hong Kong in Q1 2022, and three in Singapore over the same time frame. The listings raised $128 million and $334 million respectively.
Whether we’ll see a return of the SPAC and wider IPO frenzy that took global markets by storm in the second half of 2020 remains to be seen. Widespread regulatory, pandemic, and geopolitical issues have caused an understandable slowdown in listings, with more companies opting to wait longer for a brighter economic climate.
However, with the number of unicorns around the world continuing to grow at a blistering pace, we may well see another listing flurry return to Asia and the rest of the world once optimism returns to the markets.