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IPO withdrawals – Canaries in a Goldmine, Bats of Recession


What happens before a storm? The birds fly away, in flocks, in a panic – yes. But before that…

IPOs or Initial Public Offerings make for great headlines. More so when they come from a boiler-plate that is exciting, successful, promising and much-awaited in the pool party.

But when they bow out in a pre-mature way, they raise more than a few furrowed eyebrows. They raise red flags. Sometimes alarm bells too. Provided someone’s ears are listening closely to what the railway tracks are telling.

Never Rains But Pours

A series of cancelled or withdrawn IPOs have set forth curious and concerned, eyes to look up at the sky again. Whether it is the failure of brewer Budweiser APAC’s $9.8 billion Hong Kong listing or the shelving of logistics real estate developer ESR Cayman Ltd’s up to $1.24 billion Hong Kong IPO, these discreet step-downs cannot be glossed over.

The July 2019’s withdrawn-IPO list, as per Dealogic, includes names like Mary Jane’s CBD Dispensary, Guardian Health Sciences, Peloton Therapeutics and Codiak Biosciences.

This is not the same grey cloud as seen with Sociedad Estatal Loterias y Apuestas del Estado in 2011 and AIA Group in early 2010. What is happening in 2018 and 2019 is intriguing and worrisome on a different level. This leaden pall hovers global and is not APAC-limited. And, perhaps, due to reasons quite unexpected.

Just take a peek at EMEA (Europe, Middle East and Africa) IPOs and you would notice that the pipeline showed 18 per cent of its IPOs withdrawn in the first six months of 2018. This was the highest H1 proportion since 2012 (18.9 per cent) – as per Dealogic.

In fact, if 159 IPOs were priced in EMEA in H1 2018, 35 were withdrawn, of which 26 were pulled in Q2 2018. Turkey and France alone have pulled five IPOs each in H1 2018 vis a vis six and eight priced, respectively. It is impossible, then, not to wonder what causes some nicely-cravat-wrapped IPOs to not show up at all? Or to show up in caskets?

Clockwise Winds? Or anti-clockwise?

The reasons for cancelled or postponed IPOs are numerous and capable of creating a page-turner. “The main reasons for sluggish IPO markets, as Sidharth Sogani, CEO – CREBACO Global, surmises are – lack of liquidity and investor confidence. “Usually banks and institutions underwrite the public offering before it is open to the public, but we see that underwriting is not very promising and that could be the reason that IPOs are not achieving their targets.”

He connects the dots further and unfolds a premonition worth being haunted about. “The sluggish pattern indicates a lack of investor confidence, liquidity and involvement of institutional investors. Such patterns were observed in 2006-2007, when companies that had outstanding performance, did not achieve their targets.”

Such retreats hint strongly about the importance of investor confidence as Wayne Zhao, analyst TokenInsight also weighs in. The main reason for the suspension of the Budweiser Asia-Pacific listed exchange, could be institutional investors, especially large US investors who only make long position strategies, did not recognise Budweiser Asia Pacific’s subscription guidance price, resulting in institutional investors’ subscriptions being much lower expected.

Financial Investment expert, and an ardent advocate of sustainable investing, Ron Robins pins down the pattern of cancelled IPOs on not one problem but many. “Cancelled IPOs can be due to many reasons. Most often due to general stock market conditions such as markets going down or company-specific problems that could be seen by potential investors to be problems. High IPO volumes usually come at or near market tops.”

Sogani is listening to the silence before the storm here. He cautions that this means it is a clear indication of a recession-like period coming in and in the next few months. “We have already seen Deutsche Bank cracking as they fired their employees and downsized themselves drastically, something like this coming from a bank is a total ‘Alert’ situation according to me.” He also laments the debt scenario that he considers bad globally, and anticipates that a correction is bound to happen.

A swift reckoning of the global IPO issuance scenario in 2019 Q1 (thanks to Dealogic) throws up disquieting numbers again.

The global IPO volume stood at $17.3 billion (222 deals) and that is a strong 65.8 per cent dip from 2018 Q1 ($50.5 billion via 369 deals) and a 67.8 per cent plunge from 2018 Q4 ($53.7 billion via 372 deals).

The Chinese company IPOs stood at $5.6 billion (via 46 IPOs) representing the lowest quarterly volume since 2015 Q3 ($1.9 billion via 10 IPOs) while the UK IPO issuance scenario was just $152 million via three deals.

Hard to forget – the APAC region struggled through a 42.3 per cent and 44.6 per cent dive in both volume and activity compared to 2018 Q1.

The IPO cold is making companies sneeze all over the world, as we can see. No one is immune. And it’s time someone thought of a good vaccine or an anti-biotic.

Light Travels Faster

What is interesting and relevant for the crypto industry here are some ramifications or lessons or new entry-points for its feet in the financial-industry door (for ICOs – Initial Coin Offerings and STOs – Security Token Offerings). These signals are neither few nor far between if we are honest and brave to pick a fine-tooth comb.

Zhao reminds us of the crucial part of earning investor trust. “In view of the issuer risk, Budweiser Asia Pacific finally decided to drop this IPO. For the blockchain industry, this is also a case worth learning about the impact of investors on STO/ICO results. Undoubtedly, compared with the high-threshold IPO and the lack of regulatory ICO, it is easy to standardise supervision, expand financing channels, and reduce financing costs, so it is a relatively safer and friendly STO for investors or a new direction for the blockchain industry.”

The gloom flecked over one market can also be a ray of sunshine for the crypto/blockchain industry.

“ICO/STO/IEOs are new methods of raising capital as it is another level of crowdfunding, which is decentralised and global. I think, in the future, most projects will start going for STO offerings and raise money from all over the globe.” Sogani is upbeat here as he explains cryptocurrency as something that enables investment by retail investors to a project at a global level. “A person sitting in Ghana can also invest in an ICO/STO through crypto in New Zealand. No boundaries.”

Sogani does inject the fine-print before ICOs find any pudding in IPO poison. “This is all subject to legal regulations as governments don’t like money going out of their countries as it directly affects the deficits of currencies. Currently, the Crypto industry is around 300 Billion which is too small to be concerned about, but the token mechanics and fundamentals are here to stay and will evolve with time.”

Is recession really rumbling somewhere with the deadpan silence that some IPOs have left us with? If that storm is indeed arriving then Sogani sees a silver lining for crypto industry here. He opines that if a recession like an instance takes place, parking your money in something as decentralised like Bitcoin would be the safest option. “We see many billionaires are covering Bitcoin in their portfolio because they know that it works independently from our financial markets and is with a fixed supply. Buying bitcoin for 10 per cent of your portfolio value is like taking insurance of your entire portfolio.”

Interestingly, this could be a ripe time for ESG or Environmental, Social and Governance genre of investing to flourish too. As Robins reveals, “ESG is now mainstream for European and American financial institutions and becoming increasingly so elsewhere. Most stock exchanges are adopting sustainability—ESG—metrics for their listed companies too. Some say, and I believe it, that ESG will be so ‘normalised’ in the investment industry that there will come a time when no listed-public company or investment firm doesn’t consider it just a normal part of their activities and operations. There won’t be anything special about it. This will be a boon to everyone as it will raise the level of ESG performance to higher and higher levels for businesses everywhere!”

In other words, IPO withdrawals are not the hurricane-winds we should be worried about. The storm that is brewing underneath is something else – an imminent and inevitable recession. Or a good one – a new playground that opens up for the future of financial investing – one that is responsible, open, decentralised and green.

Not all storms kill. Some create life in the most unexpected ways.

Butterflies seem to be at work.

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