The Nation Newspaper

Tag: IPOs

  • Long wait for new IPOs

    Long wait for new IPOs

    The nation’s hitherto vibrant capital market is almost in  limbo judging by the absence of fresh Initial Public Offers (IPOs) with most companies and investors staying away from the capital market. Bukola Aroloye in this report examines the issues

    Nigeria’s capital market once the bread basket for firms hungry for long term funds, have since gone into terminal coma. With recession fever shaking the confidence of private investors in long term commitments, the capital market has since become a shallow ghost of its former self; Initial Public Offers (IPO’s) and Private Placements that were once choice of the market as recently as 2009, have suddenly become lamentably scarce!

    IPO now a scarce commodity

    Only Seplat Petroleum Development Company Plc and Transcorp Hotels Plc made Initial Public Offerings (IPOs) last year. While Seplat’s, which was a global IPO, was 100 per cent successful, that of Transcorp Hotels Plc recorded 50 per cent subscription.

    The capital market has been incapable of providing the needed funds required to fortify the equity standings of several listed companies in the clutches of debt overhangs. (

    Debt to equity ratios have risen sharply in the last two years as investors pull money out of the financial system, making IPO doubtful.

    Analysts believe that the overall weak macroeconomic scenario, the sustained negative market sentiments in the year, coupled with other factors such as falling oil prices, and the tension in the socio-political space, have not encouraged successful primary market activities.

    Meanwhile a shareholder Ade Oluyemo said these re-occurring trends are now raising questions on the health status of our primary markets as regards to IPO, since the exchange is yet to record a single IPO; over the last six months in 2017.

    Another shareholder said Abiodun Adewale since 2013 to date, majority of the markets across the world have expressed optimism about the revival of the IPO/PO markets driven by expectations on the back of performances recorded in 2012.

    In Nigeria, there seems to be a lull and lack of action in this area. For instance, the firms that signified interest in coming to the market last year have suddenly developed a cold feet – prominent of which include MTN Nigeria, Airtel Nigeria Promasidor Nigeria, among others.

    The dearth of IPO has however, made the stock market take the middle road –choosing to deploy the rights-issue option with at least 14 quoted companies deploying this vehicle between 2010 and 2012.

    The questions that thus come to mind is: is it matter or question of liquidity. Further, could it be a question of listed companies not wanting a further dilution of ownership or a reinforcement of ownership ahead of changes or threats from market making activities?

    While analysts continue to ponder on the driving factors, we understand that some firms have continued to gauge the market pulse, taking their time to approach market to raise capital based on their valuation considerations of share offer price.

    Some other planned IPOs were placed on hold due to the prevailing negative market sentiments, driven by growing uncertainties on the back of falling oil price and other macro-economic challenges.

    There have been growing agitations for multinationals in the telecoms, oil and gas to list on the nation’s bourse by way of public offer for purchase by interested members of the investing public.

    Experts have argued that compelling big corporations in niche sectors of the Nigerian economy, especially those in telecommunications , oil and gas to list on the exchange will significantly raise the capitalisation of the stock market which is currently estimated at slightly above N9 trillion.

    There is no gainsaying the fact that the listings of these giants would ultimately shore up the liquidity of Nigerian capital market, which will in turn restore the much-needed investors’ confidence.

    Nonetheless, sectorial analysis of the market shows that the telecommunication sector is under-represented. MTN, if listed would become the first major national telecom company shares to be traded on the NSE.

    The Chief Executive Officer of the Nigerian Stock Exchange (NSE) Oscar Onyema at the 5th Standard Bank West Africa Investors’ Conference held in Lagos in 2014 assured stakeholders that the equity market would witness increased number of IPOs from prospective companies.

    But that optimism has not been actualised in spite of efforts made by the NSE since 2012 to roll out initiatives that will compel companies, especially multinational firms to list on the Exchange.

    The NSE had provided a legislation that covers incentives, unbundling of stringent eligibility requirements that create high barriers for potential entrants and hinder participation by willing businesses as well as adopted options that promote foreign investment in the economy.

    Hitherto several companies have been beneficiaries of a strong capital market with the restructuring of their capital base creating local giants such as the Dangote Group. Equally many banks have been able to take advantage of a lively market to recapitalise and enhance their stability and liquidity. This has paid off in spades over the last decade. In fact, the banking sector has been one of the greatest beneficiaries of the capital market in recent years.

    The 2005/2006 banking consolidation exercise in which financial institutions were compelled by the CBN to raise their shareholders’ funds to N25billion, reflecting how banks took advantage of a vibrant long term market for capital to improve their fortunes and perhaps guarantee survival.

    Besides the duo, no other IPO has taken place since 2008. In fact, only Right Issues (sale of shares to existing shareholders in proportion to their current shareholdings) have recorded successes in the market since then. The successes have been hinged on the fact that existing shareholders, in the main, represent ‘captive’ buyers of new shares. For quite some time, Right issues have remained the only market game in town, especially for companies that could galvanise support from pre-existing shareholders.

    A fresh start

    Interestingly, about  seven companies listed on the Nigerian Stock Exchange (NSE) have approached regulators and  have got their shareholders’ nod to raise N191 billion before the end of the year, 2017, while four firms have successfully floated about N7.2 billion from January to June 2017.

    Companies floating right issues

    Money raised by way of rights issue floated in the first half of 2017 include: UACN Property Development Company, UPDC Plc N5.2 billion, Portland Cement Plc N1.02 billion, Livestock Feeds N750 million, and Meyer Plc N218 million.

    Besides, the seven companies that have gotten shareholders’ approval to raise about N191.3 billion this year include: Guinness Nigeria Plc N39.7 billion, Forte Oil N20.0 billion, UACN Plc N15.4 billion, Union Bank Plc N50 billon, Unilever Nigeria Plc N63.0 billion, and May & Baker Nigeria Plc N3.0 billion.

    This year alone the stock market has lost-5.22 per cent of its value year- to- date.

    Not even the banking sector which is not only the dominant sector but also the most actively traded could back stop the weekly tumbles.

    The development has worried several investors who seem to be looking for clarity amidst rampant uncertainty. Particularly worrisome was the fact that the market had developed niggling volatility that reversed hopes that prevailed when it seemed that the President Muhammadu Buhari administration was going push growth oriented policies.

    A bevy of stocks have also been reeling from their unprecedented heights to lower levels. Whereas, many investors are optimistic that the downward bound market would reverse the losses that have been recorded, subtle fears are now palpable that this may be an encore of the experience of 2009.

    The market became the toast of the Nigerian business community, with traders, civil servants, farmers and even students making equity investments.

    Many analysts noted that the Nigerian Stock Exchange (NSE) became a beehive of activities with both investors and speculators scrambling to make a kill. Some individual stocks recorded over 100% appreciation while others edged up by 50% and above.

    But the story has since changed. The market continued in the red disposition and is plunging further by the day

    Unfortunately, the government economic vision has not really offered hope to the citizenry. Whereas the government is still struggling to implement its promises for an expansionary economic focus for 2017 given the budget, there is still fear as she has not been able to borrow funds to fund its budget. As the nation struggles to get out of the present quagmire, many industry observers have expressed doubt given the current shrinking revenues.

    A bleak future awaits the market for obvious reasons. The massive decline in the value of the Naira which trades officially at N315 a dollar and N390 at the parallel market has made investment difficult. Though the Naira seems to be appreciating now from about N350 (Officially) to N315 and N520 (Parallel Market) to N390 per dollar, the International Monetary Fund (IMF) still believes the Naira is overvalued by 20 per cent

    Interest rates are still very high and unfriendly at the giddy height of 30 per cent and this will continue to keep the value of stocks down and low.

    Foreign investors have remained on the edge and are not as comfortable to invest much in Nigeria given the weakness of the Naira which will have reduced the value of their expected dividends and capital gains as most of them are reportedly divesting while others are waiting on the wings.

    Some international agencies had also announced the deep risk in investing in Nigeria to the foreign investors as many of them may be considering moving their investments to other more viable investment destination.

    Government’s revenue has shrunk badly given the sharp fall in the price of crude which plunged from $114 per barrel on June last year to hover between $45 and $50 currently.

    Experts blame the overall weak macro-economic outlook; the sustained negative market sentiments, and the falling oil prices as responsible.

    Analysts suspect that any public offering or Rights issue packaged at this moment would fail. This is because investors are already weary and have little or no money to spare for investment.

    Fear of failure in initial public offers has compelled banks to look elsewhere for terribly needed money; banks have shifted attention to other sectors to source capital for their operations.

    Stakeholders’ reaction

    Mr. Ambrose Omordion of Invest Data Limited had been quoted as saying that the complete absence of initial public offers (IPO), and public offers in the equities market can be attributed it to the depressed nature of the economy and the low level of confidence among the investing public.

    According to him rights issue and public offers cannot thrive in an environment where the secondary market (trading on the floor of the exchange) is not vibrant, explaining that several reasons entice companies to list on the exchange.

    “I’ m not optimistic at all. The economy is not favourable to the capital market so how will anybody contemplate doing a public offering or initial public offering now. The capital market is in more trouble than we can imagine”, a former managing director of one of the big banks who declined being named in print, said.

    Also commenting on the issue, Managing Director, Crane Securities limited, Mr Mike Ezeh, said that there is apathy toward the capital market.

    ‘’To raise money from the public now is difficult. There is negative impression about the market which has been worsened by the weak economy that is deep in recession. Even existing shareholders are not easily wooed to take up their rights. They think about it thoroughly before doing that,’’ he said adding that Guinness Nigeria which is doing a right issue now can be finding easy.

    Tunde Ariwajoye, head analyst for investment house, Orient Asset & Trust , points to the fact that the local new issues market has slipped into oblivion, ‘companies simply are not interested in improving their debt to equity ratios by raising funds from the capital market anymore  for two simple reasons;  first the market is currently ‘soft’, meaning that equity prices are pretty disappointing, and second, and perhaps of greater concern, not coming to the market is a whole lot better and honourable than having to face the tragedy and embarrassment of a failed offer.’

    According to Ariwajoye, ‘A relevant local adage says that if you cannot make my condition any better, kindly do not make it worse!”

    Also Sola Oni CEO, SOFUNIX Investment and Communication said that renewed decision by some quoted companies to do Rights Issue as an instrument of capital injection is a measure of investor confidence in the economy and the market. Rights issue presupposes that the shareholders are pleased with the company’s performance and have confidence in its ability to generate future earnings.

    Hitherto, deployment of either Rights Issue or Initial Public Offering (IPO) was literally kept at bay due to economic recession that impacted negatively on corporate earnings. However, the on-going relative stability in the operating environment is a beacon of hope.

    The attractions of rights issue are that the prices are discounted as a way of compensating the shareholders. A shareholder may take his Rights fully or partially. He may elect to simply trade the rights, a form of derivative to generate cash.

    The re-emergence of Rights Issue signals the impending arrival of Its IPO in the nearest future. It’s all about investors’ perception of the economy in the short, medium and long run.

    SEC view

    The spokesman, for Securities and Exchange Commission, (SEC), Mr. Naif Abdulsalam said the apex regular of the capital market is not unaware that some of the companies that have obtained approval from SEC to raise funds have not been able to do so.

    Abdulsalam explained that raising money from the capital market was purely a business decision regarding the disposition of the firm involved.

    He added that most of them may be looking at the disposition of the market to make a decision on the best time to ask the public for funds

    Johnson Chukwu, MD/CEO of Cowry Asset Management Limited said that the reason for the absence of IPO in the Nigerian equities market is principally due to the weak market conditions in the past few years.

    For the past three years the Nigerian equities market has been reporting negative performance in market index and capitalisation. With a consistently bearish market, investors would be reluctant to subscribe to new Offers since their expectation is that such investment would lose value upon listing. Secondly existing shareholders would not approve public offers of their company shares if they consider the market values not to reflect the intrinsic worth of their companies. Even in the event that such companies need additional capital, directors would prefer the bond market or right issues to avoid dilution of existing shareholders or selling the company at give away price to new investors. In effect, you can only have an active primary equities market if you have a vibrant secondary market. This explains why the Nigerian investment market has witnessed minimal activities in the primary market and the few offers have been limited to rights issues.

  • Recession: How far can banks go with IPOs?

    Recession: How far can banks go with IPOs?

    Faced with the prospect of dwindling balance sheets, most of the deposit money banks are desperately shopping for fresh funds by seeking Initial Public Offerings (IPO’s), Bukola Aroloye reports

    These are not the best of times for many banks as the problem of inadequate equity capital remains a hard nut to crack. With a weakening economy that has shrunk by -0.38 per cent in the first quarter of 2016 and which is expected to have done worse in the quarter to June; banks have unsuccessfully scampered to raise fresh funds to finance loans as both local and foreign sources of money dry up.

    Justification for fresh capital

    While some banks had at their 2015 annual general meetings earlier this year, obtained the approval of their shareholders to raise fresh capital, others may be compelled by the development at Skye Bank to seek for ways to beef up their capital bases.

    Roll call of banks shopping for fresh funds

    Among the banks shopping for funds at the capital market include: Access Bank Plc, Sterling Bank Plc, Wema Bank Plc, FCMB Plc and Diamond Bank Plc, who plan to raise N35bn, N20bn and N15bn fresh capital, respectively.

    As part of efforts to expand its operation base by opening new branches, Wema Bank said it planned to issue N20bn in bonds this month.

    The bank was issuing local currency bonds after scrapping plans last year to issue a $100m seven-year dollar bond because of currency risks.

    Wema Bank obtained shareholders’ approval in May to issue bonds or preference shares this year to raise N20bn in the first tranche of a N50bn programme, but market conditions, then, deteriorated.

    The Sterling Bank Plc has disclosed its plans to raise additional N35bn tier II capital by the second half of the year.

    Some other banks which have also indicated interest to raise funds include Diamond Bank, Skye Bank

    While FCMB is looking for N10 billion to N15 billion to shore up operations from its retail investors, Diamond Bank wants to raise fresh capital and sell some assets to scale up ratios, particularly the capital adequacy ratio, which has fallen 15.6 per cent of assets by June from 18.6 per cent a year ago.

    The Chief Executive Officer of Diamond Bank, Uzoma Dozie, who affirmed the plans, said the move will ensure it meets all regulatory requirements both in the short and long terms.

    “We are doing a capital management plan and that will determine how much capital we want to raise, tenor and size,” Dozie said during analysts’ conference call.

    While giving a status report, the Chief Executive Officer of FCMB, Ladi Balogun, said its capital adequacy ratio was close to the regulatory limit of 15 per cent of assets at mid-year, and that it was undertaking the capital raising to provide an additional cushion.

    “For the Tier II, we would be looking at anywhere in the range of N10 to N15 billion. It’s really going to be targeted at retail because we feel that the rates from institutions will be high,” he told an analysts’ conference call.

    Wema Bank Plc is raising N50 billion tier two capital through bonds to enable it deepen its market penetration and profitability, its Managing Director, Segun Oloketuyi, has said.

    Speaking in Lagos recently, the bank chief said N20billion would be raised in the first few weeks while the remaining N30 billion would come in the near future.

    “We will increase the drive of the ongoing cost containment initiatives and leverage on technology to increase efficiency across our channels and platforms. The bank will also be raising additional debt capital in the next few weeks to further give it the necessary leverage to drive growth,” he said.

    Also Access Bank Plc said it is seeking approval this month from shareholders to raise up to N100 billion ($505 million) fresh capital.

    Herbert Wigwe, the chief executive officer of the bank had said then devaluation of Nigerian’s local currency, the naira and falling oil prices would negatively affect the fund raiser.

    “The naira devaluation will probably dampen foreign investor demand for Access Bank’s N68 billion ($385 million) rights issue. Falling oil prices would hurt appetite for the issue too,” he said.

    Experts’ perspective on new IPOs

    Analysts suspect that any public offering or rights issue packaged at this moment would fail. This is because investors are already weary and have little or no money to spare for investment.

    Teslim Shitta-Bey, a Lagos based financial analyst said: “Unfortunately, some of the banks are in dire need of capital to shore up their capital adequacy ratio. It is also clear that some of them which have indicated interest to raise additional funds to maintain reasonable stature around the prudential requirement.”

    Speaking on the matter, the Chief Executive Officer, Financial Derivatives Limited, Mr. Bismarck Rewane, said the solution to the challenges facing Skye Bank was for it to raise additional capital.

    ‘’I’m not optimistic at all. Banks are in more trouble than we can imagine,” a former managing director of one of the big banks who declined being named in print, said.

    IPOs not foolproof

    Interestingly, IPOs were very common in 2007 and 2008 before the market witnessed a downturn. Since 2008, companies have been avoiding IPOs, embracing mostly rights issues and bonds. But that seems to have changed because in the last few years it has been difficult to pull through any of this.

    According to FBN Capital Limited, the investment arm of FBN Holdings Plc, in 2014, Nigerian banks issued Eurobonds running into over $2bn, aside other dollar-denominated foreign loans, more than the $2bn they raised in 2013.

    However, a few rights issues have helped some companies to raise capital. But there is deep fear that this may not be able to continue given the severe illiquidity in the economy. After all, the Central Bank of Nigeria a recently raised Monetary Policy Rates from 12 per cent to 14. “This is further tightening of the economy that is in a depression and does not help,” many industry analysts have said.

    David Adonri, Managing Director of Highcap Securities Limited, believes that that the capital market is depressed and cannot provide succour to any company, not only the banks that want to raise funds through equities.

    “The primary market is not active to support any IPO or public offering now,” Adonri said the problem with the banks is not the ability to raise funds. It is the misapplication of the funds.

    Like Adorin, the Chairman, Renaissance Shareholders Association of Nigeria, Ambassador Olufemi Timothy said: “This is not the right time to float rights issue or public offering because the economy is in recession. The disposable income of consumers has been depleted by general rise in prices of goods and services. It is common knowledge now that state governments are not paying salary to workers, contractors are being owed and no meaningful economic activities are going on. So, how can an investor save and invest in the capital market.”

    Also Chairman, Professional Shareholders Association of Nigeria, Mr. Godwin Anono said: “The retail investors do not have confidence in the market any longer as regulators do not protect their interest in the market. The retail investors have been short changed. If the retail investors cannot go the market to buy and sell, will the foreigners come to such market? So the companies which are about to raise money will find it difficult. Only few companies paying dividends consistently will succeed.”

  • Bullish stock market may spur IPOs, new issues

    Bullish stock market may spur IPOs, new issues

    The sustained increase in shares prices at the stock market may enliven the primary market and considerable increase in initial public offerings (IPO) and supplementary shares as means of raising funds from the general investing public.

    The Nigerian stock market turned positive last week with a modest average-year-to-date return of 3.09 per cent.

    The stock market had garnered N1.82 trillion in capital gains after the successful successful conduct of the presidential election and emergence of General Muhammadu Buhari (rtd) as president-elect.

    Aggregate market value of all quoted equities closed the four-day trading session last week at N12.135 trillion as against the week’s opening value of N10.319 trillion, representing an increase of N1.82 trillion. The benchmark index for the Nigerian stock market, the All Share Index (ASI), also jumped by almost six steps to close at 35,728.12 points as against its opening index of 30,562.93 points.

    Market pundits said the bullish run at the stock market might encourage companies to float new issues to raise funds, as the negative overhang at the stock market has been a militating factor against the primary market.

    According to analysts, rising share prices would overtime correct the undervaluation of shares of companies and encourage the companies to issue new shares based on their assessed fair values.

    They noted that some companies had shied away from issuing new shares due to investors’ apathy and undervaluation of their shares citing the recent downtrend where Oando and United Bank for Africa were forced to reduce the offer price of their ongoing supplementary equity issue.

    Transcorp Hotels, which floated its IPO, was undersubscribed with a subscription level of 52.3 per cent. Transcorp Hotels had floated an IPO of 800 million ordinary shares of 50 kobo each at N10 per share with intent to raise N8 billion, but it was only able to raise N4.2 billion from the October 2014 IPO.

    Managing Director, Finawell Capital Limited, Mr. Tunde Oyekunle, said companies would naturally move towards equity issues when they realise they could raise new funds at fair prices.

    He noted that several companies are facing financial constraints and high costs of fund and will look at options to reduce these costs, including the possibility of new equity issue.

    He said the stability of the economy and resolution of major challenges such as power and insecurity would positively impact the capital market and provide a long-term support for the recovery of the primary market.

    Head, Research and Investment Advisory, Sterling Capital Markets, Sewa Wusu, said the steep price gain may not be enough to stimulate robust public offering as investors will still wait to gauge the policy direction and economic management ability of the incoming government.

    He said that while the share price trend would enable several companies to reduce their undervaluation, government will still need to do more to enhance investors’ confidence.

    According to him, the medium to long term post-election performance depends largely on government policies, the quality of the economic management team and the general direction of governance.

    “What the market is reacting to now is the success and credibility of the election and the president-elect. But companies will still tarry a while to look at direction of government policies,” Wusu said.

    Many companies had shelved earlier immediate plans to raise new capital from the capital market due to the negative market position and significant undervaluation of the shares.

    However, reports by boards of directors of several companies had indicated that companies were constrained by their inability to source new equity capital due to the meltdown at the capital market while recourse to high-interest bank loans depressed probable returns to shareholders.

    Not fewer than eight companies had indicated interests in raising new equity funds. These included companies, such as Cement Company of Northern Nigeria (CCNN), May and Baker Nigeria, RT Briscoe, Presco Plc, Skye Bank Plc and Vitafoam Nigeria Plc. Two prospective new listings – Promasidor Nigeria Limited and Notore Chemical Industries Limited.

    Skye Bank plans to raise as much as N50 billion in a supplementary equity issue within the next six months.

    Group Managing Director, Skye Bank Plc, Mr. Timothy Oguntayo, said the bank plans to undertake the supplementary new equity issue between the second and third quarter, though it has not decided on the key details of the offer including the actual size and the offering public.

    According to him, the bank is studying proposals on the new issue submitted by various issuing houses.

    He said clearer picture of the new equity issue would come after the bank’s annual general meeting noting that the bank will make the announcement for the new issue at the appropriate time.

    Presco Plc, a palm oil plantation and processing company, plans to raise some N3 billion through a rights issue. The shareholders of the company had earlier approved the supplementary share issuance.

    Managing Director, Presco Plc, Mr. Uday Pilani, had confirmed the commencement of the rights issue noting that the board had decided to undertake the new equity raising to give the company financial flexibility and reorganise its capital structure.

    According to him, the net proceeds of the rights issue will be used to reduce the company’s debt and foreign exchange exposure.

     

     

  • IPOs hit $190b as investors hunt for returns

    Bloomberg data has showed that about $190 billion have been raised globally through initial public offerings (IPOS) in 2013. These included maiden issues by real estate investment trusts, special-purpose acquisition companies and closed-end funds.

    Companies will raise as much as $225 billion through IPOs globally next year, with about $75 billion in the United States of America (USA), according to estimates by Joe Castle, global head of equity syndicate at Barclays Plc in New York.

    According to data compiled by Bloomberg, companies raised about $22 billion in United States of America (USA)’s initial public offerings (IPOs) in the fourth quarter, bringing the total for the year to $56 billion, the most since 2007.

    Twitter Inc and Hilton Worldwide Holdings Inc helped lead the best year for US initial public offerings since the financial crisis, with strong trading debuts likely to stoke investor demand for new shares in 2014. Sales in Europe and Asia also rose sharply, with global deals tripling from the prior three months, Bloomberg data show.

    Stock-market gains that lifted US benchmarks to records pushed investors to seek new opportunities, fueling demand for IPOs, according to Sica Wealth Management LLC. The success of new listings — with stocks from New York to Tokyo jumping an average of 28 per cent in their trading debuts is luring investors and companies into the market for next year, said Deutsche Bank AG’s Mark Hantho.

    “We’ve had a renaissance of the IPO market,” Hantho, the global head of equity capital markets at the German bank, said by phone from New York. “Getting successful transactions more often than not has created a circular confidence for more companies looking to go public.”

    Companies raised $15.8 billion through IPOs in Europe, the Middle East and Africa over the past three months, up almost fivefold from $3.3 billion in the third quarter, the data show. Royal Mail Plc, Britain’s 360-year-old postal service, sold $3.2 billion worth of shares during its October IPO including an overallotment, the largest in Europe this year.

    In Asia, four companies had IPOs of more than $1 billion each, led by China Cinda Asset Management Co’s $2.5 billion offering this month.

    “It’s been a good period to do capital raising,” said Alan Richardson, a Hong Kong-based money manager at Samsung Asset Management. “The environment in general has been improving, led by the US stock market, and this in turn has contributed to more risk appetite in developed Asia.”

    The Federal Reserve’s efforts to keep borrowing costs low and boost economic growth have sent the Standard & Poor’s 500 index up 27 percent this year, the biggest increase since 1997. This in turn increased investors’ willingness to take on the risk of investing in new — untested — shares, according to Jeff Sica, president of Sica Wealth Management.

    “Investors were so caught up in the broad equity market and desperate to take risks in order to seek massive returns,” Sica said. “They viewed IPOs as easy money and jumped on the bandwagon in an effort to make a quick dollar.”

    The clamoring for IPOs is evident in the early performance of newly listed shares: Companies raising more than $100 million jumped an average of 21 per cent on their first day of trading in the U.S. this year, according to data compiled by Bloomberg. That’s the highest pop since the dot-com bubble in 2000, when shares rose 65 per cent, on average, the data show.

    In Asia, first-day gains were more than 6 percent on average, while in Europe they were more than 7 percent, the data show. Still, continued success will depend upon how the global economic recovery continues, and whether that affects inflation, according to Samsung’s Richardson.

    “The biggest risk would be that as the global economy recovers, inflation may start to rise beyond central banks’ target levels, which could be detrimental to corporate earnings growth,” Richardson said. “If inflation expectations start accelerating, that would be detrimental to stock markets.”

    Some emerging markets didn’t fare as well in initial share sales this year. Brazil’s initial public offerings dried up after the best start of a year since 2007 as investors fled volatility in the world’s worst-performing major stock market. In India, the volume of IPOs hit a more than 10-year low as political gridlock fueled stock-market volatility.

    Emerging markets “may not fully benefit from the start of a global economic recovery because they have to face the headwinds of monetary tightening,” Samsung’s Richardson said. “Historically, rising real interest rates has been negative to the performance of emerging markets, which have been more dependent on easy liquidity.”

    Emerging-market stocks posted their longest weekly slump since June on Dec. 20 as a cut in U.S. stimulus spurred capital outflows. The Federal Reserve said Dec. 18 it will reduce a record bond buying program by $10 billion, while pledging to keep interest rates near zero. Its monetary stimulus program had been helping to prop up global growth by supporting inflows into emerging markets.

    Investor appetite for shares in developed markets fueled a jump in inflows for equities globally to about $252 billion this year, compared with $31 billion in 2012, said Richard Cormack, co-head of equity capital markets for Europe, the Middle East and Africa at Goldman Sachs Group Inc “The strong levels of demand we have seen for IPOs has led to deals getting covered early.”

    Hutchison Whampoa Ltd. picked bankers to manage an IPO of its retail arm AS Watson & Co in Asia with a possible secondary listing in London, people with knowledge of the matter said. General Electric Co plans to spin off its unit that makes store credit cards in a US IPO next year, and China’s Alibaba Group Holding Limited may approach public markets, though the company hasn’t detailed any plans for a listing.

    China’s decision to end a 15-month freeze on IPOs could unleash $11 billion in share sales through the middle of next year, as more than 760 mainland companies have been waiting to go public, according to data compiled by Bloomberg News.

    In Europe, there are already more than 30 IPOs slated for the first half of 2014, according to Martin Thorneycroft, head of equity syndicate for EMEA at Morgan Stanley in London.

    “We’ve seen a sturdy comeback of the IPO market and a remarkable resurgence of investor appetite,” Thorneycroft said. “There will continue to be a broad spread of activity, with a number of billion-dollar type transactions.”

     

  • Visa, MasterCard win $5.7b approval

    Visa, MasterCard win $5.7b approval

    Visa Incorporated and MasterCard Incorporated have won approval for a $5.7 billion settlement that ended years of litigation with United States (US) merchants over allegations that credit-card swipe fees are improperly fixed.

    US District Judge John Gleeson told Bloomberg he was satisfied with the settlement, which was estimated to be the largest-ever antitrust accord.

    “For the first time, merchants will be empowered to expose hidden bank fees to their customers, educate them about those fees and use that information to influence their customers’ choices of payment methods,” Gleeson wrote in his ruling in federal court in Brooklyn, New York.

    Once owned by groups of major banks, Foster City, California-based Visa and Purchase, New York-based MasterCard have defended themselves for decades against legal claims that they operated price-fixing schemes. Swipe, or interchange, fees are set by Visa and MasterCard and paid by merchants when consumers use credit or debit cards.

    MasterCard and Visa separated from the banks through initial public offerings in 2006 and 2008, respectively. Merchants filed a class-action lawsuit against the companies and the biggest card-issuing banks in 2005. They later alleged that the payment networks continued to fix prices with the banks even after the IPOs.

     

    Lawyers representing merchants nationwide announced the settlement in July 2012. Once worth as much as $7.25 billion, the settlement was valued at about $5.7 billion as of August as a result of reductions for about 8,000 merchants that dropped out of the damages portion.

    Dozens of large retailers, including Wal-Mart Stores Inc, Amazon.com Inc and Target Corporation, as well as major airlines, health insurers and other consumer businesses criticized the deal. Some said the amount should have been higher and that a legal release preventing future lawsuits was written too broadly.

    “We are reviewing the ruling and will take whatever steps are necessary to protect the rights of merchants and safeguard the pocketbooks of their customers,” Mallory Duncan, general counsel at the National Retail Federation, said in a statement. The group expects to appeal, he said.

  • Govt’s IPOs ‘ll reactivate primary market, say experts

    Govt’s IPOs ‘ll reactivate primary market, say experts

    Expected initial public offerings (IPOs) from the government privatisation programme could provide initial tonic needed to reactive the dormant primary equity market, experts have said.

    The primary market segment, through which companies access equity funds, has been largely dormant with the last IPO recorded some six years ago. Besides a staccato of rights issues being executed by hard-pressed shareholders to recapitalise their companies, there have been no major public offering activities.

    Market operators, who spoke to The Nation, said the dormancy of the primary market was due to investors’ apathy and sense of high risks from several investors who had burnt their fingers in the previous IPOs, private placements, public offers and other new issues.

    They said the market requires a major IPO that could reconnect it with the average investors and create a nationwide awareness about the primary market potential.

    Managing Director, GTI Securities, Mr Tunde Oyekunle, said the modus operandi of the government’s privatisation and the resultant national attention to the share sales could entice investors back to the primary market.

    He said the government could as part of its efforts to develop the market deliberately discounted the IPOs to make them highly attractive and successful.

    He said the success of the government-backed IPOs would infuse confidence into corporate issuers to roll out their shelved new issues and also encourage investors to return to the primary market.

    He, however, noted that the government needs to resolve vexatious issues around the companies to ensure they are not burdened by soft issues of manpower and disclosures.

    The Federal Government recently indicated it plans to sell 27 per cent of the Egbin Power Plant to the Nigerian investing public through an IPO. Also, three per cent equity stake would be for the plant’s workers. The 30 per cent equity stake is estimated at more than N27 billion.

    The government had offered a South Korean consortium led by Korea Electric Power Corp (Kepco)the majority stake in the 1,320 megawatts Egbin Power plant for $407.3 million.

  • IPOs raise $20b in first quarter

    Initial public offerings raised almost $20 billion globally in the first quarter as companies took advantage of a rally in stock markets to sell businesses. Nigerian new issue market however remained largely dormant with no initial public offerings since the 2007-2008 recession.

    IPOs generated 18 per cent more than in the year-ago period, led by Pfizer’s $2.6 billion sale of its animal-health unit Zoetis Inc and Goldman Sachs’s offering of shares in German apartment landlord LEG Immobilien AG, according to data compiled by Bloomberg as of March 27.

    The Dow Jones Industrial Average climbed to a record this month and the MSCI World Index rose to its highest in almost five years. Sustained gains may help ease the biggest global backlog of IPOs since at least 2007, encouraging companies including Bausch & Lomb Holdings Inc and China’s Alibaba Group Holding to pursue offerings as soon as this year.

    The US led IPO fundraising in the first quarter, with companies raising $8.91 billion, 44 per cent more than a year ago, data compiled by Bloomberg show. European companies generated $3.66 billion, a 25 per cent increase. Asia was the biggest market to post a decline, with IPOs slumping 59 per cent to $2.88 billion.

    IPOs are likely to gather pace in the second quarter as companies across more industries proceed with sales and more private-equity firms seek to exit investments, said Mary Ann Deignan, head of Americas equity capital markets at Charlotte, North Carolina-based Bank of America Corp.

    “This may be the beginning of another golden age for IPOs,” said Deignan. “It’s an incredibly broad market.”

    Companies in industries ranging from energy to technology, homebuilding and real estate went public in the first quarter, emboldened by the projected economic recovery and the least volatile market in six years. The VIX, a measure of volatility in US stocks, has lost 45 per cent since the end of 2011.

    Blackstone Group LP’s Pinnacle Foods Inc., the maker of Hungry-Man frozen dinners and Birds Eye frozen vegetables, raised $580 million in an IPO. Other buyout firms are also looking to sell investments as they seek to raise new funds. Warburg Pincus LLC’s Bausch & Lomb and Madison Dearborn Partners LLC’s CDW Corp have both filed to go public week, while Bain Capital LLC and TPG Capital’s Quintiles Transnational Holdings Inc filed to raise $600 million in February.

    Global economic growth will accelerate to 2.4 per cent this year from 2.3 per cent in 2012, according to economists surveyed by Bloomberg. China, where growth slipped last year, will tick up to 8.1 per cent from 7.8 per cent, and Europe will move from contraction to expansion, according to the survey data.

    “Money is continuing to flow into equities from fixed income as investors globally look for yield,” said Klaus Hessberger, co-head of equity capital markets for Europe, the Middle East and Africa at JPMorgan Chase & Co in London.

    US investors funneled at least $65 billion into equity mutual funds since the beginning of the year, according to data from the Washington-based Investment Company Institute compiled by Bloomberg. Estimated cash flows into equity funds have eclipsed additions to bond funds from the beginning of the year through March 20, the data show. Investors had pulled money out of equities for 19 of the 20 months before January.

    “We have seen globally a resiliency to the equity markets,” said Paul Donahue, co-head of Americas equity capital markets at Morgan Stanley in New York. “IPOs are delivering returns to the buy side in excess of key relevant benchmarks like the S&P 500.”