Brexit still clogging IPO pipeline, say bankers

Initial public offerings (IPO) on the London Stock Exchange (LSE) are on track for their worst year in the past seven, as political wrangling over Brexit deters companies and investors from going ahead with their investment ideas.
Just 12 companies have listed and priced in the UK main market so far this year, a decline from 16 at the same point last year and sharply down from 28 during the first nine months of 2017, according to Dealogic, the data provider.
The slowdown has not hit UK’s bankers financially yet; banks’ year-to-date revenue from LSE listings is $93m. That is up from $86m during the January-September period last year, due to higher deal values. But uncertainty over whether and how the UK will leave the European Union still has analysts and equity capital markets bankers uncharacteristically gloomy.
Some say that unlike previous years, deal flow will not pick up in the coming months.
The head of UK investment banking at one large City institution estimated there would have been 50 per cent more deals listed on the stock exchange by last month “if it wasn’t for Brexit”.
Deadlock in Westminster, plus the prospect of an early general election, have stifled what is normally a busy time for the equity capital markets.
The co-chief executive of the UK broker and adviser Numis, said that normally September should be a robust time of year but companies have held off going public.
“Brexit has undoubtedly dampened companies’ appetite for IPOs, and many that would have gone ahead have just not happened,” he said. Market sources say that to push for a listing while the political mood swings so violently would be foolish. An IPO this autumn would be perceived as “desperate”, said one ECM banker.
“With the window we have right now, it’s very difficult to get a deal done. Unless you are a business that has the vast majority of your revenues outside of the UK, I don’t see how the best advice we can give you is for you to IPO,” he said.
Another headwind for equity capital markets is the fear among investors that stocks might not have much further to rise. Despite a wobble in the markets in late August, the MSCI World Index is up 19.1 per cent this year in US dollar terms, but trade tensions between the US and China sapped confidence.
In a survey of 235 fund managers conducted by Bank of America Merrill Lynch last month, 38 per cent said they expect a recession within the next 12 months — the highest percentage since 2009.
Bankers said these broader worries are diminishing hope that market sentiment would recover dramatically if Brexit were to be called off. Equity Capital Market (ECM) bankers are also fighting a vast wall of cash raised by private equity firms over the past few years, according to Amrit Shahani, an analyst at Industry monitor Coalition.
These private funds can provide equity capital to companies, without the need to go public. Despite some recent indications of slowing fund raising, private equity firms have a cash pile of almost $1tn, according to recent figures from data provider Preqin.
The UK investment banking head said: “Companies have so many fundraising options available to them currently. The idea of subjecting yourself to the scrutiny of public markets whilst also battling against an uncertain outlook for UK equities, makes it difficult to get IPOs off the ground currently.”
But Richard Cormack, the head of equity capital markets at Goldman Sachs in Europe, the Middle East and Africa, said: “The geopolitical backdrop has been a frustration. But there is good market activity and market share has consolidated between a smaller number of banks, so we continue to be active and busy.”
The Hong Kong stock exchange has topped a list of IPOs so far this year, in stark contrast to the LSE, which did not make the top 12. Accountancy firm EY, which tracks the top 12 stock exchanges for IPOs worldwide, places HKEX at the top of its list.
The Hong Kong exchange has been chosen by 97 companies as the venue for their IPOs this year. LSE has had 26 listings on its main and alternative investment platforms so far in 2019. The LSE came 11th last year, with 49 listings on its main market and its mid-market venue, the Alternative Investment Market. (The author is our foreign correspondent based in the UK. He can be reached at