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Shelved IPOs Create Logjam in Europe

The logjam of initial public offerings is building in Europe, after almost $10bn of flotations were shelved in the first half of the year due to market volatility and investors’ disillusionment with recent listings.

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Bankers say the real figure of scrapped IPOs is even higher than the statistics suggest, as many companies have had to quietly drop plans after preliminary talks with investors.

Bankia, the largest of Spain’s troubled unlisted savings banks, or cajas, will on Tuesday announce that it has raised up to €3.3bn from investors in an IPO seen as a crucial step in the reform of the country’s banking system. However, it was forced to deeply discount the share issue.

Astraea Capital, a specialist litigation funder, on Monday became the latest European company to scrap plans to go public, announcing it would seek private financing rather than a £100m listing on London’s Alternative Investment Market.

Despite a major backlog of companies wishing to list in Europe – JPMorgan
estimates the pipeline at $30bn – bankers fear that IPO activity will slump in the second half of the year unless sentiment improves significantly.

“If I get even half of our second-half pipeline executed I will be a happy man,” said a senior capital markets banker. “If we were paid by pipeline it would have been an amazing year. But the issue is the execution.”

IPOs have been difficult to complete in the US and Asia, but European flotations have found it particularly tough this year.

Of the $12.6bn of formally shelved IPOs globally in the first six months of the year, Europe represented $9.4bn – the worst six-month period since at least 2005, according to Dealogic.

IPO activity looks particularly challenged in the UK, where two-thirds of IPO lawyers polled by Merrill Corporation, an outsourcing group, said they believe the market will be flat or weaker compared with the first half.

September – traditionally the first window for flotations after the summer lull – is now expected by bankers to be unusually weak.

“September is often seen as a fresh start for round two of the year. But when people come back this September there are still likely to be a lot of macro uncertainties around,” said Viswas Raghavan, head of international capital markets at JPMorgan.

Some of the big banks are now urgently trying to establish a set of standards for companies and bankers to re-establish shareholders’ trust in the IPO process.





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