Half of this year’s major IPOs are underwater

Half of the companies that have raised more than $ 1 billion in IPOs this year are trading below their quote price, despite robust stock markets around the world.

The canceled IPOs include some of the best-known names to list, such as UK food delivery app Deliveroo, alternative food maker Oatly and Indian payments giant Paytm.

Their weak performance has raised questions about company valuations by large investors such as SoftBank and Warburg Pincus and leading underwriters such as Goldman Sachs and Morgan Stanley.

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

For comparison, among large IPOs listed in 2019, around 33% were below the issue price one year after entering the market, while 27% of those listed in 2020 were in the red after 12 months. negotiation.

The grim stock price performance comes despite a boom year for global equity markets, with the S&P 500 Index posting a 24% return and a record for IPOs, which have raised $ 330 billion so far this year. year, according to EY.

Deliveroo shares plunged 26% on day one and are still below their quote price © Benjamin Girette / Bloomberg

Paytm fell more than 40% in its first two days of trading and suffered the biggest day one drop of any major quote 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 was valued at $ 20 billion, now has a market cap of $ 15 billion.

Deliveroo shares plunged 26% on day one and are still below their listing price, while Chinese app Didi Chuxing’s New York-listed shares are down more than 40%.

The effects of Beijing’s tech crackdown, launched after Didi’s New York listing despite warnings from regulators, has spilled over into global stock markets, with all four quotes over $ 1 billion from this year to Hong Kong falling into the red.

“There is a lot of exuberance in the market right now,” said Raghu Narain, head of Asia-Pacific investment banking at Natixis. He said that while bankers generally advised companies to avoid setting a price target too high in order to avoid an embarrassing fall day, “issuers often want to come out with a big splash.”

Bar chart of IPOs raising over $ 1 billion showing failed IPOs piling up in 2021

Paytm deal bankers said the company is determined to set a new record for an Indian IPO, which has deterred more conservative long-term investors. This meant that some hedge funds received a larger allocation than expected and then dropped out of the stock.

Goldman has carried out 13 deals that have raised more than $ 1 billion this year, but nine of them are now in the red, including Didi and US retail platform Robinhood. Six of 14 deals conducted by rival bank Morgan Stanley were trading below their IPO price, including Paytm.

Private investors are also increasingly eager to sell amid pressure for higher yields, analysts said. James Thom, senior director of investments at Abrdn, said pressure from large lenders was a “big part” of the high valuations of large deals this year.

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

Investors have invested more than $ 2 billion in private equity funds over the past decade, seeking returns above public markets. However, since 2009, returns on U.S. public stocks have actually matched returns on U.S. redemptions at about 15 percent, according to consultancy Bain.

This parity has put pressure on private equity funds to recycle their capital more quickly to move on to the next transaction.

Richard Cormack, Emea’s co-head of capital markets at Goldman, said the wider universe of IPOs was working well, even though there were “clearly some outliers on the downside.” He added: “I do not agree with the accusation that there was a mass pricing error.”

James Fleming, Citigroup Global Co-Head of Equity Markets, said: “There have clearly been a number of underperforming IPOs this year. As policymakers become more hawkish and a rate hike becomes more visible, we’ve seen a reduction in risk in high growth companies and a preference rotation from growth to value. This has caused a lot of stocks to drop in value, not just IPOs. “

But he noted that this had not stemmed the flow of new shares issued. “In the world, we have never seen more than $ 1 billion in shares issued in a year. Then last year, we issued $ 1.1 billion in shares during Covid. I thought we would never see those numbers again, and here we are approaching $ 1.5 billion at Thanksgiving – those are extraordinary numbers.

Additional reporting by Chris Campbell in London

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