ANALYSIS - Investors shun IPOs amid world turmoil
Reuters Story - September 18, 1998 18:07
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By Holly Rosenkrantz
NEW YORK, Sept 18 (Reuters) - Jittery global stock markets have wiped out investor demand for initial public offerings, forcing scores of companies around the world to shelve their growth plans.
Questions about the direction of the world economy have put the fund managers who drive the IPO market on the defensive, and only the most solid of deals are expected to make it to market in the coming months, industry sources say.
And while IPOs from strong companies like investment bank Goldman Sachs & Co. are seen surviving, the smaller start-ups that have brought billions of dollars into the stock market with their debuts are not expected to lure investors until global markets stabilize.
"There has to be a couple weeks of upward movement in the market before we start to see any kind of flood of new issues again," said Kathleen Smith, portfolio manager at the Renaissance IPO fund.
In the United States, not a single company has launched an IPO since August 27. While the weeks near the U.S. Labor Day holiday in early September are typically slow for IPOs, the global turmoil that has flared up this year has brought a more permanent chill to the market.
John Fitzgibbon, editor of the IPO Reporter newsletter, points out that shares in companies that went public in 1998 U.S. are off a cumulative 14 percent; last year at this time, the IPO market was up 41 percent.
"Investors are losing money, and the investment banks are not bringing home their underwriting paychecks," Fitzgibbon said.
Even though no meaningful turnaround in the broad stock market is seen on the horizon, Wall Street is working with more than 80 companies planning IPOs this year.
Most of these companies have held back from setting a tentative date for their deals, and the one company that is expected to make it to market this week, eBay Inc., has held back from setting the price and number of shares it will sell to the public in its IPO.
Amid all this uncertainty, the Internet start-ups that have fueled the U.S. IPO market are seen as the biggest victims.
Though the Internet industry is relatively immune from global financial turmoil, investors are viewed as too spooked to freely bet on experimental companies with no plans for a profit.
"A lot of managers are feeling there's more opportunities other places, with their favorite stocks down 20 percent," said Steve Zenker, portfolio manager at McCabe Capital Partners. "Why take a chance on a company that has no earnings when there's all these better opportunities out there?"
As is the case in the U.S., the UK new issue market has been hit both by recent stock market volatility and the underperformance of small cap stocks this year.
Consultancy KPMG reported 31 new issues on the London Stock Exchange, excluding the Alternative Investment Market, worth 2.7 billion pounds in April-June. This quarter's total number of issues is expected only a third of that.
IPO activity in France has slowed but certainly not halted, with the government last week unveiling plans to float a stake in state insurer CNP , and another tranche of France Telecom due to the market this fall.
Most of the over 20 new issues pending are mid- to small-caps, following the wave of IPO activity by fast-growth, mainly high-tech firms across Europe this year. So far just one launch has been postponed.
And in Ireland, the country's newest bank, First Active Plc, formerly First National Building Society, has said it will go ahead with its flotation on the London and Dublin stock exchanges despite the turmoil on both markets.
"We are going for it and hoping to float on October 6," a spokeswoman said.
The former building society is planning to offer new shares at between 265 and 380 Irish pence. The building society, one of the latest in a line of British and Irish companies to ditch mutuality and seek a public listing in London and Dublin, is planning to raise around 104 million Irish pounds of additional capital with the new shares.
The expected offer price would give First Active a market capitalization of between 387 million Irish pounds and 510 million.
Weakness in Tokyo stocks has made it difficult for some Japanese firms to go public this year.
However, a market focus is now centered on the October 22 listing of Nippon Telegraph and Telephone Corp's (NTT) cell phone unit NTT DoCoMo, which would be one of the largest global issues this year.
NTT DoCoMo, whose full name is NTT Mobile Communications Network Inc., will issue 327,000 new shares at the time of listing on the first section of the Tokyo Stock Exchange.
NTT, which held 94.68 percent in NTT DoCoMo as of Aug. 17, will separately offer 218,000 NTT DoCoMo shares.
Of the shares to be sold by NTT, 54,500 will offered in the domestic market and 163,500 shares in overseas markets.
NTT DoCoMo, Japan's largest cell phone operator set up in 1991, will have 1.9 million shares outstanding at the listing.
With the offering price expected to be around 3 million yen per share, NTT and NTT DoCoMo together could reap more than 1.5 trillion yen in the share offerings, media reports said. |
