Optimism returning

No IPOs but follow-up funding hits decade high

City of London

London saw an absence of new issues (pic: Terry Murden)

London markets were starved of IPOs during the lockdown but follow-on funding in the first half of the year was at its highest for a decade.

Companies tapped investors for more than £21 billion over the first six months, representing the busiest first half since the end of the financial crisis in 2009.

Funds were raised via a range of placings, rights issues and other transactions, according to EY’s market tracker IPO Eye.

It also noted that more than 40% of the capital amassed in European markets in Q2 2020 was raised in London. By a combined measure of global IPO and follow-on activity since January, London was ranked third behind the NYSE and Nasdaq together in first place, and Hong Kong in second.

Mike Timmins, EY Scotland IPO Leader, said: “London has again confirmed its status as a pre-eminent equity market globally, leading the way in Europe for the most follow-on capital raised in Q2 2020 (over 40%). 

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“While IPO activity has been almost extinguished by COVID-19, in what is historically the busiest quarter of the year, the markets were focussed on supporting fundraising by existing issuers to shore-up finances to mitigate the impact of the pandemic.

“This trend is mirrored in Scotland with many listed corporates considering asking shareholders to help fund uncertainty in the coming months. ”

The main market saw just one IPO take place – Blackfinch Spring VCT – which raised some £3m in Q2 2020. The Shanghai listed China Pacific Insurance Group raised £1.44bn by listing GDRs (Global Depositary Receipt) in London – the second listing under the London Shanghai Stock Connect programme.

The Alternative Investment Market (AIM) did not register any IPO activity in the second quarter which marked its 25th anniversary.

Optimism returns in second half

Despite the headwinds, stock prices and valuations are recovering, reflecting improved investor sentiment and risk appetite, says the tracker.

The volatility index has also receded considerably from its high in March, approaching levels more receptive for companies to go public. 

As a result, H1 deals that were shelved and pushed into 2021 are now being considered for potential H2 2020 listings, albeit it is likely that market activity will be again dominated by fundraising activity from existing issuers.

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Helen Pratten, strategy and transactions partner, said: “IPO pipelines continue to grow in major markets.

“A further rebound of IPO activity is expected in H2 2020, on the back of strong June global IPO performance.

“However, uncertainties continue to be present. A possible second wave of COVID-19, US-China tension, Brexit negotiations, the US election and low oil prices could derail some of the positive global momentum we began to see in June.”

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