Half of this year’s big IPOs are underwater

Half of the companies that raised more than $1 billion in IPOs this year are trading below list price, despite strong stock markets around the world.

The bankrupt IPOs include some of the most famous names listed, such as the UK Deliveroo food delivery app, instead of, replace Neat food maker and Indian payments giant Paytm.

Their weak performance has raised questions about the valuation of companies by major investors such as SoftBank and Warburg Pincus and leading underwriters including Goldman Sachs and Morgan Stanley.

Dealogic data shows that 49 percent of 43 IPOs that raised $1 billion or more this year in London, Hong Kong, India and New York are trading below the issue price.

By comparison, of the major IPOs listed in 2019, about 33% were below the issue price a year after going to market, while 27% of them were priced in 2020 in the dark. red after 12 months of trading.

The dismal share price comes despite a boom year for global stock markets, with the S&P 500 posting a 24% return and a record IPO that raised $330 billion for the year. so far this year, according to EY.

Deliveroo stock is down 26% on its first day and remains below list price © Benjamin Girette / Bloomberg

Paytm more than 40% off in the first two trading days and suffered the biggest first-day drop of any major listing this year, making it one of the worst debuts in stock market history. Indian securities. The fintech team, which raised $2.5 billion and is valued at $20 billion, now has a market capitalization of $15 billion.

Deliveroo shares fell 26% on the first day and remained below list price, while New York-listed shares of Chinese ride-hailing app Didi Chuxing more than 40% off.

The effects of Beijing’s crackdown on technology, which came after Didi went public in New York despite warnings from regulators, has been felt across global stock markets, with all four listings worth more than $1 billion this year in Hong Kong falling into the red.

Raghu Narain, head of investment banking for Asia Pacific at Natixis, said: “There is a lot going on in the market right now. He said that while bankers often advise companies to avoid setting price targets that are too high to avoid an embarrassing failure one day, “a lot of times issuers want to roll out a big profit.” “.

Bar chart of IPOs raised over  billion showing Busted IPOs rising in 2021

Bankers in the Paytm deal say the company is determined to set a new record for an IPO in India, which has deterred more conservative longtime investors. This means that some hedge funds receive larger-than-expected allocations and then dump shares.

Goldman has taken the lead on 13 deals that raised more than $1 billion this year but nine of them are now in the red, including Didi and American Robinhood retail exchange. Six of the 14 deals led by rival bank Morgan Stanley traded below their IPO price, including Paytm.

Private investors are also increasingly eager to sell amid pressure for bigger profits, analysts say. James Thom, senior investment director at Abrdn, said pressure from major backers was a “big part” of the high valuations in big deals this year.

Robinhood smartphone app. Shares on the US retail stock exchange have fallen 10% last month © Tiffany Hagler-Geard/Bloomberg

Investors have poured more than $2 billion into private equity funds over the past decade, seeking higher returns than the public market. Since 2009, however, U.S. public equity returns have actually matched U.S. buybacks by about 15%, according to consulting firm Bain.

This disparity has led to pressure on private equity funds to turn their capital faster to move on to the next deal.

Richard Cormack, co-head of Emea equity markets at Goldman, said the broader range of IPOs is doing well, even if “there are clear exceptions to the downside”. He added: “I disagree with the allegation that there has been a series of mispricing.”

“Clearly there have been a number of underperforming IPOs this year,” said James Fleming, global co-head of equity markets at Citigroup. As policymakers become more hawkish and rate hikes become more apparent, we’ve seen a reduction in risk in companies with high growth rates and a shift in preference from growth to value. That has caused a lot of stocks, not just IPOs, to drop in price.”

But he noted that did not lead to flooded with new equity being released. “Worldwide, we have never seen more than $1 billion in equity issued in a single year. Then last year we had $1.1 billion in equity issued during Covid. I thought we would never see those numbers again, and here we are approaching $1.5 billion by Thanksgiving – these are phenomenal numbers.”

Additional reporting by Chris Campbell in London

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