U.S. News

IPO Market Seen in Bad Shape as Capital Dries Up

Global IPOs are having their worst quarter since the second quarter of 2009, according to data from Renaissance Capital, one of the top providers of research on initial public offerings.

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That’s because IPO investors, particularly in the U.S., are scared about making an investment that is more volatile than the broader stock market.

”When expected volatility is extreme, it’s impossible to do IPOs,” said Kathleen Shelton Smith, principal at Renaissance. “We are experiencing above-normal levels of volatility.”

So far this year, 71 percent of the IPOs that have come to market are trading below their issue price, a fact that’s scaring away investors. Total new issue volume of $19 billion is off 58 percent from a year ago.

Renaissance presented statistics during a meeting to inaugurate Renaissance’s expansion of its FTSE Renaissance IPO Index Series to cover global markets.

As companies chase capital, they are breaking into new markets. The Asia Pacific region accounted for 46 percent of all IPOs so far in the third quarter. But that’s well below the 84 percent it comprised in the third quarter of 2010.

Europe has muscled its way back into the picture, accounting for 34 percent of all IPOs so far this quarter from 5 percent a year ago, according to Renaissance.

The U.S. still trails these rivals with 17 percent of this quarter’s IPO volume, but that’s still up from 11 percent a year ago.

Apparently, companies still want to go public.

The global IPO pipeline has 330 companies looking to raise $180 billion, according to Renaissance. Given the mood of investors, however, it will take a while for that to come to market.

The big institutional investors quit first, but now even hedge funds are turning tail, according to Smith.