The IPO market pre and post COVID-19?

Latest news on it, read on to find out.

Thank you for taking out the time to check the issue of Dispatch this week. I hope you like what you are about to read.

Companies in the technology and health care sectors that are experiencing a positive impact from COVID-19 are enjoying strong revenues and higher stock prices. This could reflect well on potential IPO candidates from these sectors, in terms of their valuations and investor sentiment. Industrials, technology and health care outpaced other sectors by both IPO deal number and proceeds. Investors will review equity stories in light of potential COVID-19 impact. Issuers are encouraged to accelerate IPO preparation and time their plans to be flexible and to move quickly for narrower IPO windows.

There were three key challenges for the IPO market in 2020. Firstly, market volatility at the time was so high that it was almost impossible to price IPOs. Secondly, weak performance over the previous quarter held back investors in summer. Thirdly, the US president elect Joe Biden could stimulate an unusually high level of IPO activity in the fall, causing a bottleneck in this month. US-China-EU trade tensions, concerns about economic growth and other geopolitical issues (e.g. Brexit and social unrest in Hong Kong) affected IPO activity for much of 2019 which yet has it’s long lasting impact on the IPO market.

In Mainland China, we saw for the first time a company listed on the STAR market had its first-day trading price fell below its IPO price. This signals to the market that not every company listed on the STAR market will be a “home run.”As such ,investors may be more discerning of valuations of IPO candidates in 2020, which could have an impact on IPO activity.

In HongKong, a series of new policies that restrict the use of shell companies and suspend inactive or persistently poorly performing companies from trading, while intended to protect investors, may impact IPO candidates’ confidence to go public. HK Ex is also paying more attention at the valuation levels of smaller IPOs engaged in traditional business but expecting high IPO valuations. This may mean that IPO candidates will have to be more sizeable than just barely meeting the basic listing requirements; or be new economy companies which are favoured by the market players before they can enter the public capital market.

 In Japan, a healthy IPO pipeline and steady equity markets raise expectations that Japan will continue to launch around 90 to 100 IPOs annually. However, the increase in VAT from 8% to 10% as of October 2019 may have a weakening impact on investor sentiment.

In Singapore, openness of policies and the SGX’s effort to promote their market should prove fruitful in terms of improved IPO activity in 2020.

Across Asia-Pacific, IPO activity in 2020 is expected to retain a balance between the more traditional and well- understood sectors, such as natural resources and industrials, with the high-growth opportunities offered by the technology and health care sectors.

In Australia and New Zealand, IPOs will remain challenging for the remainder of 2020 although companies that demonstrated resilient business models during COVID-19 and those exhibiting a strong growth story will have much better chance to complete their IPO. We can expect mining and technology small-cap IPOs to continue as the theme.

The attention of policy makers and finance ministers is turning from rescue to recovery packages in Europe. Central banks are also sending strong signals of support: European Central Bank (ECB) has increased its Pandemic Emergency Purchase Program (PEPP) with the hope of GDP rebound and development of major markets.

In Europe, if volatility levels continue to trend down and if major equity indices remain high, we expect IPO activity to improve in the second half of 2020.

In the UK ,IPOs that were expected to be postponed until 2021 are now more optimistic about listing by end of 2020. But they will be keeping an eye on the market volatility that may materialise since the lead up of the Biden win in the US elections recently.

In the Middle East countries ,we expect investor sentiment to remain cautious in the for the remaining of 2020 and IPO markets to take their time rebounding.

In India, once capital markets rebound ,we may see both PE exits and other IPOs that had planned to go public between March and December 2020 come back into play.

Post-crisis, IPO candidates should expect the digital formats adopted during the pandemic (virtual investor meetings, real-time feedback and shortened roadshow periods) to remain. Companies looking to go public will have to prioritise early investor education and hone their virtual marketing skills.

Hope this was worth your time. Thank you for reading.

Have a wonderful day. I hope to see you next week.