Global fundraising in capital markets falls by $900 billion in the first quarter

Global fundraising in capital markets fell by more than $900 billion in the first quarter compared to the same period in 2021, with soaring inflation, the war in Ukraine and volatile asset prices having delayed stock listings and hampered bond transactions.

The companies raised $2.3 billion in the first three months of the year through equity sales and new borrowing in the bond and loan markets, the smallest sum in six years and in down from more than $3.2 billion a year ago, according to data provider Refinitiv.

Bankers and investors say the drop in activity stems from dramatic swings in global stock markets and the start of the Federal Reserve’s interest rate hike, prompting fund managers to steer clear of higher investments. risky and high-flying stocks.

“The hardest part and what was scary about this quarter was the volatility,” said Richard Zogheb, global head of debt capital markets at Citi. “When stock markets go up a lot and then go down a lot, it’s just crazy. There’s such uncertainty about where things are headed.

New stock market debuts have all but dried up in the United States, with less than two dozen companies going public in a traditional initial public offering so far this year. Globally, equity sales raised $131 billion, about half of last year’s level. That sum roughly matches activity in 2019 and 2020, but that’s largely down to a string of big listings in Asia, where nine of the year’s 15 biggest IPOs were launched. . In the United States, equity sales are at their lowest since 2009 at the height of the financial crisis.

The stock market debut of South Korea’s LG Energy Solutions, which raised nearly $11 billion, eclipses any other floater so far this year. This includes $1.1 billion raised by buyout boutique TPG Partners in the United States and $1 billion by Vaar Energi, one of Norway’s largest oil and gas producers.

Market volatility also pushed up borrowing costs in the US corporate bond market by $10 billion, although companies were still able to raise needed cash.

Total corporate bond issuance fell 7% to $1.36 billion, just over $100 billion below last year’s levels. The decline was driven by a notable decline in borrowing from companies that rating agencies consider riskier.

Some lenders backed off in the face of volatility, refusing to extend credit or seeking higher borrowing costs when they could feel comfortable with the risks. Lending in the global high-yield bond market fell 72% to $59 billion. U.S. issuance totaled just $34 billion for the first quarter, down from $139 billion a year earlier and the lowest first-quarter total since 2016, when an economic slowdown in China sent shock waves in world markets.

Yields on junk bonds, the debt of poorly rated corporate issuers, rose from 4.3% to over 6%, mainly due to the rise in benchmark interest rates, rather than a revaluation drastic reduction in poor quality business loan risk.

Some stability has settled in equity and corporate bond markets recently, even as sovereign bonds – the backbone of the global financial system – have continued to decline in value. This has opened the door for some companies, including fintech firm SS&C Technologies, to tap investors for capital after postponing planned borrowing earlier this year.

“Companies can’t wait forever,” said Alexandra Barth, co-head of US leveraged finance at Deutsche Bank. “There is hope to see some stability in Europe. It’s possible to wait a while, but eventually that patience will wear off and we’ll see other deals coming to market. Eventually, companies must accept that this is the new reality.

Bankers and investors are awaiting the reopening of the U.S. IPO market, with several private companies worth at least $1 billion seeking to go public. Recent volatility has prompted some investors, including Fidelity and T Rowe Price, to revise downward their assumptions about the current value of certain private equity interests. Earlier this month, grocery delivery company Instacart moved to cut its own valuation by 40% to $24 billion in a new funding round.

Supply product bar chart (in billions of dollars) showing the largest IPOs of 2022

Although some companies have delayed their listing plans until the second half of the year, many companies such as eye care firm Bausch & Lomb have continued to update documents with US securities regulators. securities in order to be ready to register quickly when market conditions improve.

“The order book is high and investors have a lot of capital to put to work,” said David Ludwig, head of equity capital markets at Goldman Sachs. “The combination of those two things means that once we see more stability in the broader markets, [IPOs] will be welcome.”