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Global Roundup

ECM activity slowed dramatically during the final month of the quarter as early year optimism for an improved Q1 versus the trade war impacted Q1 of 2019 gave way to a realisation of the social and economic impact of COVID-19.

It took 10 days for the first $20bn to be raised through ECM in 2020, with an average of 12 days to add every $20bn up until March 5th when a total of $120bn was reached. It then took 27 days (including March 5th) to add the next $20bn, with global ECM volume hitting $140bn on the last day of the quarter. The final Q1 2020 global ECM volume of $140.1bn was up just 2% from $137.3bn in Q1 2019.
ECM volume was up in January versus 2019 for all three global regions, and while Asian activity had started to slow from the end of January as Chinese COVID-19 restriction measures coincided with Lunar New Year, both EMEA and the Americas saw an increase on 2019 ECM volumes.

 

 

Asia Pacific Americas EMEA

But as the market took note of the implications, firstly in travel and tourism-related stocks and then across the whole market, stock prices fell, VIX spiked and what ECM activity there was, was either small or opportunistic.
As the quarter drew to a close the first COVID-19 linked capital raisings to shore up balance sheets or fund clinical trials started to appear, with the expectation that many more will be seen in the coming months.

 

EMEA ECM IPOs: a precipitous fall

With Coronavirus panicking the global markets, EMEA ECM has suffered. Q1 2020 ended with EMEA issuers generating a total of $31.5bn via 290 transactions, marking the third lowest Q1 in proceeds and the fifth lowest in activity in the past decade.

 

The rapid spread of COVID-19 accompanied by the collapse of oil prices in early March have impeded the EMEA IPO scene in Q1 2020. It has witnessed 28 IPOs – the second lowest activity for a quarter since Q3 2012 (18 IPOs) and its second lowest proceeds for a Q1 ($2.1bn) in the past decade since Q1 2019’s disappointing $479m. Geopolitical reasons, including Brexit and the US-China trade war, were mainly responsible for last year’s muted Q1.

 

High volatility levels and a sharp drop in regional indices – MSCI Europe & Middle East index dropped 24.75% since the beginning of 2020 – have repelled investors from IPOs. In the last two Q1s (2019 & 2020), IPOs have contributed an average of 4.2% market share to the total EMEA ECM proceeds compared to 32.9% in Q1 2018.

 

EMEA Convertibles and ABB issuances to the fore

On another note, convertible bond transactions and accelerated offerings (ABBs) 1 were the main investor attractions in the first two months of 2020. Heightened volatility benefitted equity-linked issuances, especially in the first part of Q1 2020, while ABBs issued by strongly-performing companies were well received. However, both structures have experienced a slump for the rest of the quarter due to subdued investor sentiment.

 

EMEA Convertible bond transactions generated a total of $4.3bn via 10 deals accounting for 14% of the total EMEA ECM proceeds in Q1 2020, thus continuing their relative upward trend since Q1 2018 while ABB issuances, in line with Q1 2019, made up 65% (via 119 deals) of the total EMEA ECM proceeds, the highest contribution in the last decade’s Q1.

 

The capital raising of German online food provider, Delivery Hero ($2.6bn), a simultaneous offering of a two-tranche convertible bond, combined with an equity placement to fund the acquisition of Woowa Brothers Corp, has been the largest EMEA ECM deal in 2020 so far and the largest EMEA simultaneous offering since 2015, when Israel’s Teva Pharmaceutical’s generated an aggregate of $7.4bn.

 

 

EMEA’s ECM healthcare activity on the rise

The healthcare sector led the EMEA ECM activity in Q1 2020 with 63 issuers raising $4.3bn in aggregate, ranking the sector 2nd in EMEA ECM by volume, followed by technology which raised $12.2bn via 52 transactions. With COVID-19 cases dramatically increasing in EMEA and governments introducing measures unheard of in peacetime, it may be considered an irony that transactions within the healthcare sector in EMEA have seen the highest activity ever for a Q1 so far.

 

The flotation of Dr. Sulaiman AlHabib Group ($699m) in Tadawul was the largest EMEA IPO in Q1 2020 and the largest MENA healthcare IPO ever. It has not only boosted EMEA’s ECM healthcare proceeds but also MENA’s total healthcare ECM proceeds to $1.4bn via 12 transactions in Q1 2020, the highest proceeds in a quarter for the subregion since Q4 2015 ($7.5bn) and a record high in number of deals.

 

The pipeline also looked promising with EMEA healthcare companies filing 14 ECM transactions since the beginning of 2020, compared to the fact that the healthcare sector had none in Q1 2019. Israeli and Swiss companies; Ayala Pharmaceutics and NLS Pharmaceutics are expected to raise an aggregate of $90m via their flotations on Nasdaq, while Swedish companies IRRAS and Isofol Medical have announced Rights Issue capital raisings of $16m and $15m respectively.

 

 

China ECM Attempts to Escape from the Gravity of COVID-19

The A-share new listing volume has managed to stand firm under the virus, recording the highest Q1 listing volume in the past 6 years with $11.5bn raised via 52 deals, topping the global new listing table over the US which raised $10.5bn via 40 deals. The promising performance was contributed to the $4.4bn volume generated by Beijing-Shanghai High Speed Railway Co Ltd in the beginning of the year, and the $4.2bn volume raised in the new STAR board. The impact of the coronavirus on the new listing market has started to surface towards the end of the quarter. The listing volume had declined gradually in the first 3 months with $2.0bn raised in March, but still marked the highest March volume since $3.7bn in 2017.

 

In 2019 private placement has reached the lowest level since 2012 with just $11.3bn raised via 92 deals, outpaced by the heated convertible bonds that finished with $46.7bn via 149 deals. However, things may change in 2020 as new regulations were introduced on February 14th, giving green lights to placement capital raising. The new regulations allow more small-sized companies to initiate private placement at a steeper discount price and increase the number of investors participating with a shorter lock-up period. These favorable terms may potentially boost the number of private placements that have raised $3.2bn via 12 deals so far after cities shut down and markets having been in turmoil due to the virus outbreak in the previous months.

 

 

India ECM driven by foreign investment

As one of the more popular countries for ECM in Asia, India recorded only 29 deals, marking the most inactive Q1 since 2014 with 28 deals. However, a few notable deals did come out of this quiet and volatile quarter.

 

On March 6th, Carlyle-backed SBI Cards & Payments Services raised $1.4bn via its IPO, the biggest listing in the country since the $1.5bn New India Assurance IPO in November 2017, and the largest listing from the credit card and transaction industry globally since the $3.0bn Synchrony Financial listing on NYSE in November 2014. Carlyle secured $950m by reducing 38.5% of its shares in the company, and its joint venture partner; State Bank of India followed through by selling 5.4% of its shares in the company. The IPO attracted investment from 74 anchor investors subscribing for more than a quarter of the deal, and this warm reception allowed the deal to price at the top of the range. This good response, however, doesn’t translate to positive aftermarket performance as the company closed 10% down on its debut on March 16th and is still trading 18.1% below its offer price.

 

Another notable deal was completed earlier in January from Bharti Airtel. The telecommunication services provider raised a total of $3.0bn from a concurrent offering of qualified institutional placement and convertible bonds. This was the first foreign currency convertible bond transaction since Glenmark Pharmaceuticals in May 2016.

 

 

Brazil’s good start brought to a halt

Despite the impact of coronavirus on the globe, Brazil still had a good start for Q1 2020. A total of $8.4bn was raised via 13 deals during the quarter, marking the highest Q1 volume on record. Follow-on issuance made up 91% of all the volume for Q1 with $7.6bn, which was also the highest follow-on Q1 volume on record. The biggest Latam deal was the $5.2bn Petrobras follow-on, which became the largest Latam deal since April 2013 after the $5.7bn BB Seguridade Participacoes SA IPO.

 

Brazil IPOs could have also been set for a record-breaking quarter if the pandemic had not happened. Last December the Brazilian bank XP Inc priced its IPO on the Nasdaq. It raised $2.3bn with the deal pricing above the initial range. It was the third largest Brazil IPO in a decade. Following this success, a total of 25 Brazil IPOs filed in Q1 2020 although only 4 IPOs ended up being able to price.

 

 

US Market sees sights of recession

The US follow-on market stood at $29.2bn for Q1 2020 – the lowest Q1 volume since Q1 2009 during the Great Recession starting in 2008. Compared to the last economic slump, we saw a worse market reaction this time. During the recession for Q1 2009, we only see the Volatility Index at around the mid 40’s compared to this quarter where it is around the mid 50’s. On March 16th, we saw the highest volatility number on record of 82.69. The S&P 500 Index has erased most of the gains in the past three years.

 

 

The bright spots in the US market

While the overall market came to a stop, there were certain sectors which still managed to execute new deals. The healthcare sector was one of the few sectors which finished with a strong quarter. Starting from the second week in March when the coronavirus situation became more severe there were only 8 ECM deals priced in the US market – 6 out of them were from the healthcare sector. The healthcare sector raised $16.3bn via 103 deals for Q1 2020, which is the highest quarterly volume since Q1 2015 ($29.2bn). 11 healthcare companies raised a total of $3.5bn this quarter via IPOs. One of the notable deals was the PPD Inc IPO, it raised $1.9bn via Nasdaq on February 5th. It is the largest healthcare IPO since 2013 ($2.6bn Zoetis Inc).

 

SPACs were another area with a strong quarter, following on from the success of 2019 when SPAC volume was the highest volume on record. In Q1 2020 SPAC continued with a total of $3.7bn via 13 IPOs – the highest Q1 volume on record. One of the repeat issuers, Churchill Capital, which had raised $690m back in June 2019, raised more money this quarter from Churchill Capital Corp III. This is the third largest SPAC IPO on record. It raised $1bn in February via NYSE with Citi and Goldman Sachs as the bookrunners. Currently there are 53 IPOs in the backlogs, 12 out of the 53 IPOs are SPAC IPOs.

 


 

– Written by Dealogic ECM Research

Data source: Dealogic, as of April 2, 2020

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