While 2018 is panning out to be forgettable for many investors, the primary market hasn't witnessed much of a downturn in terms of value, according to a report by international law firm Baker McKenzie.
Value Offsets Volume Erosion
The total value of global initial public offerings hit a four-year high in 2018 at $219.4 million, up 5 percent year-over-year, according to Baker McKenzie.
IPO volume declined from a 10-year high of 1,739 in 2017 to 1,448 this year, down roughly 17 percent.
The anomaly between the value and volume is explained by an increase in high-value deals.
Some of the notable high-value deals include Tencent Music Entertainment Group TME, which raised $1.1 billion in a U.S. IPO, and the proposed $23-billion Tokyo listing of SoftBank Group's mobile business.
Geopolitical Headwinds Weigh On Volume
The year was marred by multiple adverse developments on the geopolitical front. The Sino-American trade standoff that is threatening global economic growth began to rear its ugly head in early 2018 and has shown no signs of abatement even as the year draws to a close.
About two-and-a-half years after Britain voted in a referendum to exit the European Union, a Brexit has yet to materialize, creating further uncertainty around the impact it will have on Britain as well as the rest of the world.
"It's been another year of strong geopolitical headwinds — protectionism, Brexit and general uncertainty caused by elections around the world — all of which have done little to dampen capital market activity amongst certain issuers," said Koen Vanhaerents, Baker McKenzie's global head of capital markets.
Lean Domestic Vs. Robust Cross-Border Listing
Global domestic listings fell both in value and volume terms, by 21 percent and 11 percent, respectively. Elections in the U.S., India and much of Latin America were behind the drop, according to Baker McKenzie.
Even amid the global weakness, the U.S. stood out with respect to domestic listings, as volume rose 18 percent thanks to tax reform and regulatory changes.
Cross-border listings showed a 68-percent jump in value to $62 billion and 19-percent growth in volume to 221 listings, according to Baker McKenzie.The catalysts behind the outperformance of cross-border listings have been regulatory reforms in Hong Kong that made listing easier as well as Chinese companies making a beeline to the U.S.
Hong Kong was the preferred destination for cross-border listing, as the value of deals more than doubled. The tweaking of regulation to allow companies with weighted voting structures; Chinese issuers' quest for foreign investment; and reduced regulations relative to domestic listings served to make Hong Kong attractive, the report said.
Financials Lead, Telcom Issues Grow Solidly
Financial IPOs numbered 290, up 18 percent, although by value these fell 24 percent to $41.7 billion. Telecom IPOs skyrocketed 2,300 percent to $33.9 billion, thanks to China Tower's $6.9-billion listing and Xiaomi's $5.4-billion listing, both in Hong Kong.
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