Cross-border IPOs grow share of listings while market falls

Baker McKenzie's full-year Cross-Border IPO Index rose by 16% to 32.3 for 2016, as cross-border deals gained a larger share of new equity deals in 2016.

Issuers raised USD 30 billion from cross-border IPOs in 2016 through 109 deals. Total deal value fell 25% on the prior year but proved less volatile than domestic IPOs, which fell by 47% to USD 56 billion. Cross-border deals accounted for 35% of new IPOs.

Eight out of the top 10 cross-border listings by value in 2016 were on the Hong Kong Stock Exchange, with two on the New York Stock Exchange. All ten were by Asian issuers. With IPO activity down across the board, The New York Stock Exchange was the only major exchange to see cross-border IPO growth, with value up 206% and volume 40%. Issuers raised 75% of the total value of cross-border deals on the Hong Kong Stock Exchange alone. Adding deals on the NYSE and NASDAQ brings the total to 96% of the global value of cross-border deals.

Notably, cross-border listings on the London Stock Exchange in 2016 fell the most of any major exchange, declining by 85% in value and 38% in volume, while domestic UK IPOs dropped 58% by value and 26% by volume.

The average amount of capital raised by a cross-border IPO in 2016 was USD 276 million, compared to USD 160 million for a domestic listing.

The story of 2016 is geopolitical instability, particularly as the world waited on the results of the UK referendum and US elections, along with weak economic performance in key jurisdictions, resulting in weaker investor appetite. Investors have been conservative, rewarding realistic pricing and seeking as much certainty as possible." Koen Vanhaerents, global head of capital markets at Baker McKenzie

 

Sector outlook: energy and tech set for 2017; financials dominate 2016

Looking to 2017, technology listings have a promising outlook, with Snapchat's mooted IPO. If Snapchat's IPO is successful, it will be the largest US-listed technology offering since Alibaba Group in 2014.

Saudi oil giant Aramco, could also list in 2017 in what would be the biggest IPO in history. Saudi Arabia plans to modernise and diversify its economy. The company is considering the New York, London, Hong Kong and Tokyo Stock Exchanges as possible listing venues.

In the current year, the financial industry dominated cross-border issuance, with issuers raising USD 19 billion, 64% of the global total mainly thanks to Chinese banks, insurers and brokerages listing in Hong Kong.

Consumer products, energy and technology were the only sectors raising more from cross-border listings in 2016. Financial companies also dominated volume, with a quarter of all cross-border deals this year. But the only industry that showed an increase in volume was energy and power, up 80%, with 9 IPOs as energy prices stabilised.

Healthcare has also been in the spotlight this year, with deals stifled by the threat of US government intervention on drug pricing and controls, increased financial risks and the presidential election, causing the industry to see a 61% decrease in listings. The outlook has changed and regulatory intervention receded in the final quarter, which may set the scene for biotech IPOs in 2017.

Private Equity exits track cross-border IPOs downwards 

In 2016 Private equity exits via IPOs fell to USD 22.01 billion, in line with the wider market. Trade sales continue to attract, providing more certainty and potential for higher pricing than an equity offering. However, the six PE-backed cross-border IPOs raised USD 11 billion, an increase of 100%.

Hong Kong, New York and London were the most active exchanges for PE exits. Two of the largest cross-border deals in 2016 were PE backed; Postal Savings Bank of China, and ZTO Express Inc, which listed on Hong Kong and New York stock exchanges respectively.

Financials, healthcare and retail are the top three industries by value for PE backed exits in 2016, with the real estate sector having the highest increase in value.

Watch: An overview of the market

Regional perspective

Asia Pacific Asia Pacific IPOs declined in volume and value for both cross-border and domestic deals for the first time since 2013. The region still accounted for 76% of all cross-border equity deals, with companies listing in Australia, Hong Kong and Singapore. Chinese banks led the way, raising a total of USD 11 billion in Hong Kong. China's banks are raising capital to expand and clean up balance sheets. Outside banks, the consumer products and services sector had the highest growth rate for capital raised in 2016 from cross-border IPOs, with an increase of 1,090%, this was followed by real estate and energy and power with an increase of 165% and 24% respectively. The Shenzhen-Hong Kong Stock Connect, designed to give foreign investors greater access to shares listed on the mainland, launched on 5 December 2016. It is expected to begin to open financial markets in China to global investors.

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Europe, Middle East & Africa

Capital raised by companies listing in EMEA decreased by 76% to USD 871 million. Investors remained apprehensive about investing in the region as market recovery remained slow. EMEA is the only region down overall on both debt and equity capital markets financing, with corporates opting for bank finance amid capital market turbulence caused by political uncertainty and weak GDP growth. Following the UK's decision to leave the EU, Q3 was particularly impacted, with only 17 IPOs of any sort across the region. Technology, media and entertainment and energy were the only sectors to increase capital raising via cross-border IPOs in EMEA. Technology and telecoms saw the biggest declines. The value of London IPOs dropped by 62%. However, deal value on Euronext was down 63% and on Frankfurt 31%, indicating a poor year for IPOs generally, rather than any decline of London as a financial centre.

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North America

North America was the only region to see an increase in the value of cross-border IPOs, rising 29% to USD 6 billion, with ZTO Express raising USD 1 billion and LINE raising over USD 800 million on the NYSE. Companies in the consumer products and services, financials, consumer staples, energy and power, technology and industrial sectors all raised more in 2016 via IPOs. Healthcare fell due to regulatory action on pricing, though these concerns have dissipated somewhat since the presidential election. US equity markets have risen by around 6% since the election on pro-business sentiment though uncertainties remain about the new administration's policies. Recent announcements of potential cross-border listings in North America in 2017 come from a Brazilian beef producer, a German hotel booking business and a Chinese logistics company backed by Alibaba.

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Latin America

There was no cross-border IPO activity in Latin America in 2016, and the region saw only four domestic listings. Equity markets continued to be weak. Mexico's IPO listings have been put on hold after the US election. Finance in the region continues to be dominated by debt rather than equity, with almost USD 91 billion of corporate bond issuance in 2016 compared to just USD 501 million raised by IPOs.