Banking Crisis Causes 70% Drop In Global IPOs

he risks of banking turmoil and recession are writing the primary crisis lines in the global IPO market, causing it to freeze, even as public investors begin to believe the worst is over for stocks.

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According to data compiled by Bloomberg and visualized by News Agency, the companies raised only $19.7 billion in initial public offerings in 2023. This represents a 70% year-on-year decrease and the lowest comparable amount since 2019.

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The biggest drop was in the United States, where only $3.2 billion was raised. This lull in activity comes on the heels of a slowdown that began last year when rising inflation prompted central banks to tighten aggressive policies and reduce investors' appetite for risk.

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Troubles in the banking sector following the failure of some medium-sized US lenders, including Credit Suisse, have increased uncertainty about the path of interest rates as the US Federal Reserve works to contain inflation by avoiding further difficulties.

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"The number one issue is interesting, and there is clear debate about how long the squeeze will last or how quickly it will change direction," said Uday Furtado, co-head of Asia-Pacific equity markets at Citigroup.

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"Several things, including central bank management, will need to be seen to determine whether this is the second, third, or fourth quarter," he added, referring to the reopening of the IPO window.

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Negotiations in suspended

According to Trade Algo, Oldenburgische Landesbank AG, a German bank backed by private equity firms, has halted work on an IPO that was scheduled to take place as early as May due to investor concerns about the health of the global banking system. "There is so much uncertainty about what will happen at the end of the year that investors are becoming even more nervous," said Stephanie Nevin, global portfolio manager at Ninety One. "This appears to be an inconvenient time to invest capital in an unknown company."

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While the positive point of the year was the secondary sale of shares of publicly traded companies, which brought in $76 billion this year, up 48% from the previous year. This includes the sale of a stake in Post Bank Japan for up to 1.3 trillion yen ($9.9 billion), the largest sale of its kind in nearly two years.

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Shareholders and companies rushed to sell shares to capitalize on early-year stock market activity and secure funding in a growing environment. Because of the high cost of debt, some companies are turning to public offerings to raise capital to pay off debt and other financing needs.

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