Latin America saw a sharp decrease in both value and volume of initial public offerings (IPO), largely due to continuing economic and political turmoil in the region compounded by a climate of global economic uncertainty. Across the region in the first half of 2019, there were only two domestic IPOs totaling USD $243 million; a decline of -95% in value and -71% in volume compared to the same period last year, according to research from global law firm Baker McKenzie. In the first half of 2018, domestic IPO activity reached USD 4.694 billion in 7 public offerings.
In the first half of this year, Grupo SBF SA raised over USD $173 million on Sao Paulo’s B3 exchange last March and Inmobiliaria Manquehue SA raised USD 69 million on the Chilean Santiago Stock Exchange in February. The one listing out of Latin America was that of Colombia’s USD $100 million offering from Andina Acquisition on Nasdaq, the first Latin American IPO since the US federal government shutdown ended in January.
Ongoing political and economic unpredictability results in just two IPOs compared to seven during the same period last year
In the same period last year, Mexico and Brazil saw all of the region’s seven domestic IPOs. The hangover of political scandals in Brazil and new populist leadership in Mexico has taken its toll in both countries, as Latin America experienced its lowest level of IPO activity since 2014. Whereas the industrial, financial and healthcare sectors experienced high-value IPOs in the first half of 2017 and the first half of 2018 in Latin America, these sectors registered none in the first half of 2019.
Pablo Berckholtz, Head of Capital Markets in Latin America at Baker McKenzie, says: “While activity is usually driven from Mexico, Brazil and Argentina, political issues and scandals have caused great tumult in these areas, with Argentina’s economy continuing to contract. We are, however, beginning to see threads of progress from other areas – Chile for example, where the government is making concerted efforts to drive its economic development, despite its own political instability.”
The dip in IPO activity was not exclusive to Latin America. Globally, the total value of IPOs saw a marked decrease of 37% with respect to capital raising, while total volume tumbled 34% in the first half of the year compared to the same period in 2018. A total of USD 69.8 billion was raised across 514 IPOs – the lowest such statistic for both value and volume since 2016. The US federal government shutdown, evolving trade tensions between Washington and Beijing, the enduring Brexit saga and the decline of mega IPOs all weakened the market’s performance. Some listing locations have had to make strategic changes to entice public offerings as fewer IPOs and competition amongst exchanges continues to grow.
Koen Vanhaerents, Baker McKenzie’s Global Head of Capital Markets said: “The global IPO market experienced quite a slow start to the year as significant political issues stifled activity, along with a change in investor sentiment towards risk – particularly among pre-revenue companies. While global activity experienced sharp declines, this is perhaps skewed slightly when compared to the stellar performance seen in the same period in 2018. With a strong pipeline, 2019 looks set to deliver a much more prosperous performance overall.”
Cross-border IPOs slow across the globe
Compared to an active 2018, global cross-border IPOs faltered in the first half of the year with total value down 55% to USD 11.3 billion and volume down 16% with 85 listings recorded. The tumble in capital raised by Chinese issuers accounted for much of this decline. China remains the most active cross-border issuer, raising over USD 8.8 billion in Hong Kong and the US – despite a 62% fall in value compared to the first half of 2018.
The global the first half of 2019 Cross-Border Index value declined to 18 from 19.8 in the first half of 2018, illustrating a decline in proportion of cross-border IPOs, but remaining well above the lows reported in 2016 and 2017. The Hong Kong Stock Exchange and Nasdaq came out on top as cross-border destinations, and the only exchanges to show an increase in activity, up 7% and 33% respectively