August 7, 2014 5:29 pm

Spiky trading upsets US share listing plans

A spike in volatility in global equity and bond trading in July weighed on the market for initial public offerings in the US as companies scratched plans to sell stock.

Seven US-listed IPOs – including agriculture company Taggares Inc and health-technology company KineMed – were withdrawn in July, the highest number since November 2012, according to Dealogic. The seven companies were expected to raise $525m.

Mixed US economy signals, rising geopolitical tensions and warnings by Federal Reserve policy makers that the valuations in some corners of the markets were “stretched”, contributed to a jump in volatility to its highest level in more than three months, as measured by the CBOE Vix index.

“Market conditions are obviously part of the consideration for companies when they are planning to come to market through IPOs,” said JJ Kinahan, chief strategist at TD Ameritrade.

“From the escalation of tensions in places like Ukraine and the mid-East, Fed comments and the fact that most markets were trading at all time highs, all contributed to a return in volatility and price swings. Investors and companies have just turned a bit more cautious.”

Overall, 29 IPOs have been withdrawn this year, outpacing last year’s total of 23 deals. Fourteen of the withdrawn IPOs cited market conditions as the reason for the change of plan, according to Dealogic.

A boom in merger and acquisition activity also contributed to the withdrawals. In the healthcare sector, where eight IPOs were withdrawn this year, five were pulled due to acquisitions.

In spite of the withdrawals, 2014 has been a banner year so far for IPOs. The last week of July was a hive of activity, with 16 IPOs being priced, even as the US stock market sold off.

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Nearly 200 companies raised a little over $45bn through US-listed IPOs so far this year, the highest by number and dollar amount raised since the same period of 2000, according to Dealogic.

Analysts said the outlook for IPOs in the coming months remains solid. At least 10 IPOs were scheduled to take place during the month of August, according to Dealogic.

“It’s healthy for markets to correct a bit from time to time,” said Mr Kinahan. “There are bright spots out there, such as the strong level of corporate earnings and the fact the US GDP just expanded at a 4 per cent rate.”

Some high-profile deals are also expected.

In one of the year’s most anticipated listings, Alibaba’s IPO is expected after the US Labor Day Holiday on September 1. The Chinese ecommerce company may raise about $20bn when it comes to the market, rivalling the Agricultural Bank of China’s $22.1bn IPO from July 2010, currently the largest on record.

Last week, Virgin America, the California-based airline partly owned by Sir Richard Branson’s Virgin Group, announced plans for an IPO that may raise more than $300m, and was targeting a market value of more than $1bn, according to people familiar with the listing. A timeline for the offering has not been announced.

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