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Strategic Finance

Record year for global IPO activity

Written by Adrie van der Luijt

Monday, 17 December 2007

Global initial public offering (IPO) activity reached record levels in 2007, with capital raised at an all-time high.

The number of companies choosing to go public in the first 11 months of this year exceeded the whole of 2006, according to figures released by Ernst & Young.

$255 billion was raised globally through 1739 IPOs from January through November 2007, compared to $246 billion raised in 1729 deals in 2006.

The year-end spike in IPO activity seen in 2006 looks likely to be repeated in 2007 with preliminary data for the first two weeks of December indicating a further $18 billion raised in 91 IPOs.

Absence of mega-deals

This record level of activity has been achieved despite the absence in 2007 of the mega-deals seen in recent years.

The largest IPO of 2007 to date was Russia’s VTB Bank, which raised $8.0 billion, some way short of Chinese bank ICBC’s $22 billion, the largest IPO of last year.

IPO activity continues to be driven by the emerging markets, which accounted for the majority of the largest deals of the year at 14 out of the top 20 IPOs, compared with nine of the top 20 in 2006.

By industry, financial companies continue to dominate, representing one-quarter of all funds raised. Industrial and real estate also accounted for some of the biggest deals of 2006.

Brazil, Russia, India and China – the so-called BRIC countries – have raised $106.5 billion in 382 deals so far this year, compared with $89.6 billion raised in 302 deals in the same period of 2006. China generated more IPOs (209) than Russia, Brazil and India combined (173).

Ongoing globalisation of the capital markets

Worldwide, China, the US and Brazil were the market share leaders by capital raised with $52.6 billion, $38.7 billion and $29.0 billion raised respectively. China also led the way in terms of the number of listings with 209, ahead of Australia and the US with 189 and 178 IPOs respectively.

Gil Forer, global director of IPO initiatives at Ernst & Young, said that the increased activity across the emerging markets stemmed from the growth of their economies and the ongoing globalisation of the capital markets.

This has led to the rise of new world-class financial centres, investors looking further afield for investment opportunities, and the continuing trend of companies looking to list on domestic exchanges. Almost all of the top 20 IPOs in 2007 went public in their home countries.

Forer added that the surge in IPO activity in China is a clear reflection of the growth in the Chinese economy and the confidence investors have about putting their money into China.

Some of the mature markets saw a drop in the number of IPOs in the second half of 2007, which could be attributed to the high volatility of the markets.

Share of leading exchanges

Unsurprisingly, Asia-Pacific accounted for 46 per cent of IPOs worldwide, ahead of Europe, the Middle East, and Africa (EMEA) with 35 per cent and North America with 14 per cent.

EMEA and Asia-Pacific have the greatest market share of capital raised with 38 per cent and 32 per cent respectively, eclipsing North America (16 per cent) and Central & South America (14 per cent).

The total share of the leading exchanges was down this year from 51 per cent to 45 per cent by number of listings, and from 72 per cent to 58 per cent by total capital raised.

Despite accounting for only 4 per cent of the total number of IPOs so far this year, Hong Kong was the leading exchange by capital raised, attracting a 13 per cent market share, mainly due to having some of the year’s largest listings, including China CITIC Bank and China Railway.

NYSE was ranked second by capital raised (11 per cent), attracting 3.6 per cent of total listings driven by a number of large US deals, including Blackstone Group and MF Global.

Although only 2 per cent of IPOs through November listed on LSE, it attracted 10 per cent of capital raised, mainly through a few large Russian deals, including VTB Bank and Pik Group.

“Despite ongoing market uncertainty, the pipeline of IPO-ready companies looking to list in 2008 looks healthy, especially across the emerging markets,” Forer concluded.

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