Has the war in Ukraine caused an IPO market slowdown?

There is a marked difference between the number of IPOs this year and in 2021. With the Ukraine/Russia conflict and hikes in inflation and interest rates heightening market uncertainty, companies are waiting for the air to clear.

The war in Ukraine has dampened investor appetite for risk, which was already harmed by ongoing concerns about growth and valuations, particularly as last year’s IPOs have failed to deliver historic returns. As a result, it is more difficult for companies to execute deals and IPO successfully.

According to Bloomberg, around 100 deals worth a combined $45bn, including bonds and loans and acquisitions, have been delayed or pulled since the start of the Russia-Ukraine conflict at the end of February. Of the companies affected, 49% are US firms, 28% are based in Asia, 17% are in Europe and the remaining 6% are in South America.

Affected company IPOs include: Chinese conglomerate Dalian Wanda Group’s plans to list its shopping mall unit in Hong Kong; liver disease and cancer biotech firm Sagimet Biosciences; and stroke treatment startup Bioxytran [BIXT].

At the end of February, Chinese fast-fashion outfit Shein shelved its plans to list in the US, while buy now, pay later lending platform Kredivo cancelled its $2.5bn SPAC merger with VPC Impact Acquisition Holdings II [VPCB] back in March due to “unfavourable market conditions”. Earlier this month, Australian entertainment and streaming giant Foxtel also announced a delay to its flotation on the ASX.

Commodity trader Olam Group [VC2.SI] has delayed plans for the London listing of its food ingredients division. The company exports corn and wheat from Ukraine, as well as sunflower oil and seeds.

The decelerating IPO market

The IPO market has seen a significant slowdown compared with last year, which saw a record 2,682 deals across global markets raising $608bn. This year, according to data compiled by EY, markets saw a total of 321 deals completed in the first quarter, down 37% from a year earlier. The $54.4bn raised marked a decline of 51% from the first three months of 2021.

The dilemma facing many companies is whether now is the right time to IPO and whether investors will view their valuations favourably. More delays could yet follow. Eagerly anticipated listings in London include Virgin Atlantic and Burger King UK, while Jaguar Land Rover, owned by Tata Motors [TTM], has also been the subject of IPO rumours.

“With the prevailing headwinds arising from geopolitical tensions and conflicts, inflation and interest rate hikes, it will be imperative for IPO-bound companies to take a fresh look at how these challenges will affect their markets, customers and suppliers to their business,” Paul Go, EY global IPO leader, wrote in a research note.

A waiting game

As for when the IPO market will begin to pick up, the outlook is likely to remain uncertain until geopolitical tensions and economic uncertainty ease. “Many plans for fresh offerings are likely to be shelved until a measure of more calm returns. Timing is everything for an IPO,” Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, told Bloomberg.

Many companies are likely to hold back until the inflation picture looks clearer, and more interest rate hikes could see the IPO pipeline continue to dry up. The situation could be further complicated by the war in Ukraine delaying decisions on interest rates and central banks not being aggressive with their monetary policy as they otherwise would have been.

There are other geographical and macroeconomic factors at play. Coronavirus cases have been surging in mainland China, for example, which could have an impact on businesses and listing valuations in the country. However, according to a press release on 1 April, Deloitte believes that IPO activity in mainland China and Hong Kong will likely accelerate if the pandemic situation improves and the conflict subsidies by the end of the second quarter.

All this said, there are still those going ahead with IPO plans. Veteran piano maker Steinway and Sons signalled its intention to go public, while French music streaming service Deezer intends to float in Paris.