Global fundraising in capital markets shrivelled by more than $900bn in the first quarter from the same period in 2021 as surging inflation, war in Ukraine and volatile asset prices delayed stock listings and hampered bond deals.
Businesses raised $2.3tn in the first three months of the year through equity sales and new borrowings in bond and loan markets, the smallest sum in six years and down from more than $3.2tn from a year ago, according to data provider Refinitiv.
Bankers and investors say the drop-off in activity stems from dramatic swings in global stock markets and the start of interest-rate rises from the Federal Reserve, which has prompted money managers to shy away from riskier investments and high-flying stocks.
“The hard part and what has been scary about this quarter is the volatility,” said Richard Zogheb, global head of debt capital markets at Citi. “When you have equity markets up a lot and then down a lot, it’s just insane. There is such uncertainty about where things are going.”
New stock market debuts all but dried up in the US, with fewer than two dozen businesses going public in a traditional initial public offering so far this year. Globally, equity sales have raised $131bn, about half the level of last year. That sum is roughly in line with activity in 2019 and 2020, but it is largely because of a string of big listings in Asia, where nine of the year’s 15 largest IPOs have launched. In the US, stock sales are at the lowest since 2009 in the depths of the financial crisis.
The year’s blockbuster stock market debut of LG Energy Solutions in South Korea, which raised nearly $11bn, dwarfs any other float so far this year. That includes the $1.1bn raised by buyout shop TPG Partners in the US and $1bn by Vaar Energi, one of Norway’s biggest oil and gas producers.
Market volatility also pushed borrowing costs in the $10tn US corporate bond market higher, although companies have still been able to raise needed cash.
Total issuance of corporate bonds fell 7 per cent to $1.36tn, just over $100bn short of last year’s levels. The dip was led by a noticeable decline in borrowing from companies that rating agencies consider to be more risky.
Some lenders backed away given the volatility, refusing to provide credit or seeking higher borrowing costs when they could get comfortable with the risks. Lending in the high-yield bond market globally fell 72 per cent to $59bn. Issuance in the US totalled just $34bn for the first quarter, down from $139bn a year prior and the lowest first quarter tally since 2016, when an economic slowdown in China sent shockwaves through global markets.
Yields on junk bonds, debt of lowly-rated corporate issuers, climbed from 4.3 per cent to over 6 per cent, largely as a result of rising benchmark interest rates, rather than a dramatic reassessment of the risk of lending to low-quality companies.
Some stability has crept in to equity and corporate bond markets lately, even as sovereign bonds — the backbone of the global financial system — have continued to slide in value. That has opened the door for some companies, including financial technology company SS&C Technologies, to tap investors for capital after postponing planned borrowings earlier this year.
“Companies can’t wait for ever,” said Alexandra Barth, co-head of US leveraged finance at Deutsche Bank. “There is a hope that we see some stability in Europe. There is an ability to wait for some time but eventually that patience will dissipate and we will see more deals that have to come to market. Eventually companies have to accept that this is the new reality.”
Bankers and investors are waiting for the IPO market to reopen in the US, with several — private companies worth at least $1bn — angling to go public. The recent volatility has prompted some investors, including Fidelity and T Rowe Price, to scale back their assumptions for what some private holdings are now worth. Earlier this month, grocery delivery company Instacart decided to cut its own valuation by 40 per cent to $24bn in a new funding round.
Although some companies have delayed listing plans until the second half of the year, many businesses such as eyecare company Bausch & Lomb have continued to update paperwork with US securities regulators so they are ready to list quickly when market conditions improve.
“The backlog is high and investors have a lot of capital to put to work,” said David Ludwig, head of equity capital markets at Goldman Sachs. “The combination of those two things means once we see more stability in the broader markets, [IPOs] will be welcome.”