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2020: A year of big IPO washouts?

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2019 witnessed the biggest share sale ever as Saudi Aramco went public in December – what will happen to IPOs in 2020?

Despite an economic slowdown and an escalating trade war between global economic superpowers US and China, 2019 witnessed some of the world’s biggest share sales ever. Saudi Aramco, the most profitable company in the world, finally listed its shares on the Tadawul and broke Alibaba’s record of the biggest IPO ever. Alibaba themselves raised around $12.9 billion by listing on the Hong Kong stock exchange. Many expected the trend to be continued in 2020 as well, but an unprecedented event, the coronavirus outbreak, has brought global markets to a standstill. Many companies across the globe had announced their plans to list their shares in IPOs in 2020 last year. However, as things stand, most of them are likely to postpone their IPOs and due to the coronavirus pandemic which has pushed the global economy into recession. Big names such as Airbnb and Ant Financial, fintech arm of ecommerce giant Alibaba, had already announced their IPO plans in 2020. What will happen to these IPOs now? Will these companies still go ahead with their IPO plans despite the market turmoil? What are their other options?

Interestingly, IPOs in Q1 2020 performed better than Q1 2019, seeing 11 percent and 89 percent increases in the number of deals and proceeds respectively, according to EY. Around, 235 companies were listed globally and $28.5 billion were raised in proceeds through the first three months of 2020. The Asia- Pacific region saw 160 deals during the period raising a total of $16.8 billion in proceeds, which is a 28 percent and 110 percent increase compared with Q1 2019. Asia was followed by two American continents with 40 IPOs raising $8.2 billion in proceeds. The extent of the economic impact of the Coronavirus pandemic was, however, known only by mid March by when most of these IPOs were over.

The IPO market in 2019 and top deals
Despite Saudi Aramco’s record-breaking share sale, IPO proceeds were at their lowest level for three years in 2019. According to Chicago-based law firm Baker Mackenzie’s Cross-Border IPO Index 2019, geopolitical tensions combined with over-optimistic valuations on a number of high-profile listings have constrained activity in the global IPO market during 2019. The report revealed that total global IPO activity fell by 20 percent to 1,242 listings, while the value of capital raised fell by 8 percent to $206.1 billion when compared to the previous year.
Financials was the number one sector for both volume and value in 2019. Despite a decrease of 26 percent to 236 deals, the sector still raised an impressive $45.8 billion, a 3 percent increase in value from last year. Technology saw fewer IPOs but enjoyed an increase in the value of 12 percent to $36.3 billion.
The US, Hong Kong and mainland China IPO bourses remain key drivers of the global IPO market, securing the top positions in terms of total funds raised. Though market sentiment and investor confidence this year have been affected by US-China trade tensions, Brexit, and the economic slowdown in major economies, global IPO markets still ended strong in 2019.
The Hong Kong stock market once again ranked first globally in terms of IPO proceeds, at a time of global uncertainties, cementing its position as the world’s leading IPO hub, according to KPMG’s IPO markets 2019 review report. The bourse completed 160 IPOs, raising a total of HKD 307.8 billion, with a historical high of 145 new Main Board listings, a considerable increase from 130 in 2018. The fundraising total in 2019 was largely driven by a strong performance in the second half of the year by Alibaba’s secondary listing and Budweiser. Hong Kong was followed by NASDAQ and NYSE which raised around $27.5 billion and $27.1 billion respectively.
Overall, around 250 companies across the globe filed to go public in 2019. From century-old companies such as Levi Strauss to newcomers Pinterest, the portfolio is diverse. What was the fate of the biggest IPOs in 2019?

Saudi Aramco: The biggest share sale in history
The whole world had their eyes fixed on Saudi Arabia’s state-owned oil giant Aramco as the company finally went public on December 5, 2019. The oil behemoth raised $25.6 billion in its initial public offering on Tadawul. Aramco sold its shares on Riyadh Stock Exchange at $8.53 per share and the shares were oversubscribed. The company reached a valuation of $2 trillion, making it the first company in the world to reach the coveted dollar trillion figure.
However, the path has not since been an easy one for the most profitable company in the world. Saudi Arabia’s crown prince Mohammad Bin Salman Al Saud announced Aramco’s decision to go public as early as 2016. However, due to various unprecedented events, Aramco’s mega share sale was postponed numerous times. This very decision saw some of the biggest stock exchanges in the world such as the New York Stock Exchange, the Hong Kong Stock Exchange and the London Stock Exchange competing against each other to list Aramco’s shares. However, Aramco later decided against it and later announced that it will list 5 percent of its shares on the Saudi Stock Exchange or the Tadawul.
The Saudi crown prince pursued the much-coveted $2 trillion valuation for Aramco from the very beginning, however, many experts thought otherwise. Some even argued that Aramco’s actual valuation should be around the $1.5 trillion mark. Aramco’s market cap rose to $2 trillion on its second day of trading on the Saudi Arabian stock exchange, Tadawul overtaking the likes of Apple and Microsoft.

1. Alibaba: Hong Kong’s biggest listing since 2010

The Chinese company made its debut on the Hong Kong Stock Exchange and raised $12.9 billion in November, 2019. The ecommerce giant issued 500 million new ordinary shares along with a 75 million greenshoe option. Around 50 million of these shares were reserved for retail investors. The ecommerce giant priced its shares at a 2.8 percent discount to its last closing price in New York.

Alibaba’s listing will also be Hong Kong’s largest initial public offering since insurance giant AIA raised $20.5 billion in 2010. Alibaba’s initial plan was to raise around $13.4 billion by exercising the greenshoe option. The listing was scheduled to take place in the first half of 2019; however, it was postponed due to the anti-government protests on the streets of Hong Kong that pushed its economy to the brink of a recession.

The initial public offering, which also ranks as the world’s biggest cross-border IPO, listed Alibaba’s shares at or $22.5 per share, which is 2.9 percent lower than its last close of $185.25 on the New York stock exchange. Alibaba’s global offering comprised 500 million shares, with an over-allotment option of 75 million shares. Each American Depository share (ADS) that Alibaba listed on the Hong Kong Exchange was worth 8 shares and each ADS was priced at $179.92.

2. Uber: The IPO that wasn’t
San Francisco-based multinational ride-hailing giant Uber also made its debut in the New York Stock Exchange in 2019. Uber’s share sale was the biggest in the US and also the most controversial. Uber expected to price its shares somewhere between $44 and $50 per share. However, Uber listed its shares at $45 per share and raised around $8.1 billion on the stock exchange. Uber’s shares plunged almost 8 percent on its first day of trading. While Uber was targeting a valuation of $100 billion, the company was valued at about $75.46 billion, which still makes it one of the most valuable companies ever to go public, but that’s a 38 percent drop in its estimated valuation from October 2018.

Uber’s premier on the New York Stock Exchange was closely watched by the cavalcade of IPO hopefuls lining up to list in 2019. That crop includes Peloton Interactive, Postmates, Slack Technologies, and WeWork, all of which were in preparations in progress to go public last year.

3. Budweiser: Succeeding on Asian investor appetite

American brewing company Anheuser-Busch-owned Budweiser also went public last year. The St Louis headquartered brewing company listed Budweiser’s Asia-Pacific business on the Hong Kong Stock Exchange in September last year. The company priced 1.45 billion shares at HK$27 each and raised $5 billion, giving the company a market value of about $45.6 billion. Its shares opened at HK$27.40 per share, above its IPO pricing of HK$27 per share. It was priced at the bottom of its expected range of between HK$27 and HK$30.

Anheuser-Busch attempted to raise close to $10 billion in July through a public offering of its Asia-Pacific business, however, the attempts were not fruitful.

Budweiser APAC chief executive Jan Craps told the media during the launch, “We are focused on growth, growth is what we set out to do … Asia of course is the largest beer market in the world. We think we can do a lot of partnerships in Asia here, even if we’re the largest brewer in Asia today, this is still a market where we have a lot of opportunities, in many markets where we’re not leading … as well.”

Budweiser shares rose about 4 percent on their first day of trading which highlighted the appetites of Asian investors that were widely expected to be subdued by the ongoing protests in Hong Kong.

Postal Savings Bank of China: Globalising mainland lenders
The Postal Savings Bank of China, the country’s largest banking institution, listed on the Shanghai Stock Exchange in 2019 and saw a rise of nearly 2 percent from its initial public offering price. The bank raised $4 billion on its first trading day. The bank sold up to 5.95 billion A shares at 5.5 yuan a share. The share sale by the Postal Savings of China, which has the largest network of branches in the country, was also the biggest IPO in China since 2015. The deal also marks the sixth H-share and A-share dual listing of China’s leading state-owned lenders, under a year-long push to globalise large mainland lenders.

2020’s big IPOs and what will happen to them

Despite the coronavirus pandemic, Shanghai overtook Hong Kong as the world’s top initial public offering (IPO) destination in the first three months of this year. This is due to the $4.5 billion IPO launched by Beijing-Shanghai High Speed Railway, the operator of the rail link between China’s two biggest cities. China seems to have recovered from the novel coronavirus crisis, which originated in the Chinese city of Wuhan. Hong Kong, which was the top IPO market last year despite the anti-government protest bringing its economy to the brink of a recession, dropped to sixth place in the first quarter. Companies that are rumoured to get listed on the Hong Kong Stock Exchange this year include Tencent Holdings-backed WeDoctor. The online health care provider has picked Credit Suisse, JP Morgan and China Merchants Bank to handle its IPO. Reportedly, WeDoctor will push ahead with a Hong Kong listing which will value the Chinese healthcare platform around $10 billion. According to reports in the Chinese media, other companies which could go public in 2020 include JD Logistics, Chinese e-commerce giant JD.com’s logistics arm, Tianjin-based China Bohai Bank and Hillhouse Capital-backed liquid detergent maker Blue Moon.

US-based Home booking platform Airbnb announced its decision to go public last year. Established in 2008, Airbnb has raised a total of $4.4 billion across 15 venture capital funding rounds so far. Currently, the company is valued at around $35 billion making the San Francisco-based the fourth largest unicorn in the US. Reportedly, Morgan Stanley and Goldman Sachs, are poised to become the lead advisors on Airbnb’s probable direct listing. However, Airbnb has not announced a date so far, and it is being speculated that the company could postpone its IPO to 2021 due the coronavirus pandemic.

Alibaba owned Ant Financial, which had an implied valuation of $150 billion during a 2018 fundraising, is preparing to go public in Hong Kong and mainland China. Ant Financial is the highest valued fintech company in the world and is also the world’s most valuable unicorn company. Ant Financial operates Alipay, the world’s largest mobile and online payments platform. Additionally, it provides online investments and other related services to hundreds of millions of consumers. As of recent, the company now plans to sell in-house expertise to the same banks and help them digitalise their operations with tools such as cloud computing and data analytics. Reportedly, both Credit Suisse and China International Capital are both reportedly in talks with Ant Financial with regard to the listing. Even though it is highly speculated that Ant Financial will go public this year, the company has not yet made any formal announcement.

Other companies such as telecom giant O2, Chinese ride-hailing giant Didi Chuxing and US-based mobile trading app Robinhood. It will be interesting to see how many of these companies go ahead with their IPO plans given the economy has entered recession due to the coronavirus pandemic. In case companies are forced to cancel their planned IPOs, they could adopt alternative sources of finance such as debt financing, joint ventures, strategic alliance, acquisition, additional funding round, crowdfunding or even asset sales.

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