Corporate Finance : Volatility Boosts Trading But Shuts Out Ipos




Initial public offerings in the United States plunged 86% last year to the lowest level in 31 years, with only one IPO priced in the fourth quarter of 2008, according to Thomson Reuters. By comparison, 60 IPOs came to market in the US in the fourth quarter of 2007. Tumultuous market conditions led to the withdrawal of 107 proposed new equity issues last year.

While volatility is bad for capital-raising activity, it is good for trading. “In a year marked by unprecedented equity declines and market volatility, DRs [depositary receipts] traded at record levels of liquidity,” says Michael Cole-Fontayn, chief executive of The Bank of New York Mellon’s depositary receipt division. “While DR capital raisings and DR initial public offerings declined, as would be expected, DRs from all regions saw a double-digit increase in trading volume due to market volatility,” he says.

More than $4.4 trillion of DRs traded on worldwide markets and exchanges during 2008, an increase of 34% from a year earlier, according to The Bank of New York Mellon’s year-end report on the industry. DR capital raisings totaled $14.4 billion, a 74% decrease from the record $54.7 billion in 2007.

The New York Stock Exchange, Nasdaq and NYSE Alternext US (formerly the American Stock Exchange) accounted for 84% of worldwide DR trading in 2008. A record 119 billion DRs valued at $3.7 trillion traded on the US exchanges last year.

DR trading on the Inter-national Order Book, the main DR trading platform for both the London and Luxembourg stock exchanges, also grew strongly.

Reflecting market turmoil and unfavorable market conditions, The Bank of New York Mellon ADR (American depositary receipt) Index declined 46% in 2008, closing lower for the first time in six years.
“Difficult market conditions brought on by failing investment banks in the third quarter [of 2008] and poor stock market conditions in the last six months diminished the appeal of the equity capital markets as an attractive financing option,” according to Thomson Reuters’ year-end review. Global equity and equity-related underwriting volume in 2008 fell 42% to $471 billion, the lowest level since 2003, it said.
There were 2,063 issues in the equity capital markets last year, the fewest since 1991. J.P. Morgan led the 2008 equity and equity-related league tables in 2008, with $61 billion in proceeds from 154 deals. Goldman Sachs was second, with $45 billion in proceeds, and was followed by Citi, Merrill Lynch and Morgan Stanley.

J.P. Morgan built its lead with such key transactions as Visa’s $19.7 billion IPO in the first quarter of 2008 and Wells Fargo’s and General Electric’s follow-on offerings, each valued at more than $12 billion, in the fourth quarter.

Despite the overall decline in equity underwriting last year, financial sector issuers had record issuance of $234 billion, an increase of 18% from 2007, due mainly to follow-on and convertible offerings from banks and insurance companies. In the United States seven financial firms issued 12 self-led deals, worth $70 billion, including seven common-stock offerings that raised $50 billion and five convertible preferred offerings valued at $20 billion.

IPO listings on Saudi Arabia’s stock exchange, Tadawul, increased 42% last year, with proceeds of $6.6 billion, according to Thomson Reuters. This was due largely to the sale of a 70% equity stake by Saudi government-backed Al Inma Bank, a shariah-compliant financial institution. Al Inma’s $2.8 billion offering, which was open only to Saudi nationals, was the largest IPO of the year across the EMEA (Europe, Middle East and Africa) region and was led solely by Samba Financial Group. Saudi mining group Ma’aden raised $2.5 billion in an IPO in July 2008, with the government selling a 50% stake in the company.
Asian equity capital market volume, including Chinese A-shares but excluding Japan, totaled $67 billion in 2008, a decline of 71% from 2007. Japan’s equity and equity-related volume fell 40% to $15 billion, the lowest since 1998.


Gordon Platt