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

Global capital in capital markets fell by more than $900 billion in the first quarter compared with the same period of 2021 as rising inflation, the war in Ukraine and volatile asset prices delayed the listing of shares and hindered them. bond transactions.

According to data provider Refinitiv, businesses raised $2.3 billion in the first three months of the year through equity sales and new loans in the bond and loan markets, the smallest amount. for six years and down from more than $3.2 billion a year ago.

Bankers and investors say that drop in activity stemming from dramatic fluctuations in global stock markets and the start of the Federal Reserve to raise interest rates, which has driven money managers away from riskier investments and stocks. flying high.

“The tough and scary thing about this quarter is volatility,” said Richard Zogheb, global head of debt capital markets at Citi. “When you have the stock market go up a lot and then drop a lot, it’s crazy. There is such uncertainty about where things are going. “

New stock market launched all but exhausted In the US, fewer than two dozen companies have traditionally gone public so far this year. Globally, equity sales grew by $131 billion, about half of what it was last year. That amount is roughly in line with activity in 2019 and 2020, but largely due to a string of big listings in Asia, where nine of the year’s 15 biggest IPOs have gone live. In the US, stock sales are at their lowest level since 2009 amid the financial crisis.

The first-quarter stock, bond and loan proceeds (trillion dollars) column chart shows the companies that raised the least capital since 2016

Blockbuster stock market launch of the year LG Energy Solutions in South Korea, it has raised nearly $11 billion, outperforming any other float so far this year. That includes $1.1 billion raised by the buyout store TPG . Partner in the US and 1 billion dollars by Vaar Energione of Norway’s largest oil and gas producers.

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

Total corporate bond issuance fell 7% to $1.36 billion, just over $100 billion short of last year’s levels. This decline was led by a significant drop in borrowing from companies that rating agencies consider riskier.

Some lenders backed off in the face of volatility, refusing to provide credit or seeking higher borrowing costs when they could be comfortable with the risk. Lending in the global high-yield bond market fell 72% to $59 billion. Total issuance in the US hit just $34 billion in the first quarter, down from $139 billion a year earlier and the lowest first quarter since 2016, when a economic recession in China sent shockwaves through global markets.

Yields on junk bonds, debt of undervalued corporate issuers, rose from 4.3% to more than 6%, largely due to an increase in benchmark interest rates, rather than a re-evaluating of lending risk low quality company.

Some stability has crept into equities and corporate bond markets lately, even as government bonds – the backbone of the global financial system – continue to decline in value. That has opened the door for a number of companies, including financial technology firm SS&C Technologies, to approach investors for funding after delaying planned loans earlier this year.

“Companies cannot wait ever,” said Alexandra Barth, co-head of US leveraged finance at Deutsche Bank. “There is a hope that we see some stabilization in Europe. There is likely to be a wait for a while but eventually that patience will wear off and we will see more deals coming to the market. Ultimately companies have to accept that this is the new reality.”

Bankers and investors are waiting for the IPO market to reopen in the US, with some – private companies worth at least $1 billion – preparing to list shares. Recent volatility has led some investors, including Fidelity and T Rowe Price, to downsize their assumptions about the value of some private equity holdings today. Earlier this month, grocery delivery company Instacart decided its own cut 40% valuation to $24 billion in a new round of funding.

Bar chart of Initial Offerings (USD billion) showing the largest IPOs of 2022

Although some companies have postponed listing plans until the second half of the year, many businesses such as the eye care company Bausch & Lomb continue to update their paperwork with the US securities regulator so that they ready to list quickly when market conditions improve.

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

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