As December approaches, thousands of Spaniards will start buying their tickets for the El Gordo lottery, dreaming that their number will be sung out by the school children who announce the draw each Christmas. This year they will have the option of not just playing the lottery, but investing in its privatisation.

On Wednesday the chairman of Loterías y Apuestas del Estado presided over a “Square of Dreams” in Madrid to market the offering to the public. Spaniards were asked to write down their dreams on recycled tickets, and placed them in boxes in the central squares across the country.

Bankers working on the deal are cautiously optimistic that the listing of 30 per cent of the state-owned operator – expected to raise more than €7bn, the largest in Spanish history – will be successful.

“People are looking for a bulletproof asset, and this is as bullet proof as you can get,” one person close to the deal said. “There seems to be a real appetite, as it has a unique quality.”

Globally price IPOs

Loterías appears to have the defensive qualities desired by investors unnerved by the European debt crisis. The company is debt-free, revenues fell by just 0.5 per cent at the depths of Spain’s economic contraction, and it is expected to pay a dividend yield of above 6 per cent.

Yet turbulent equity markets have led many other companies to shelve flotation plans – leading some industry insiders to question Loterías’ initial public offering.

“The challenge isn’t the profile of the business, but trying to sell €7bn of anything in this distressed market,” concedes one banker working on the deal. “There are some tough discussions to be had, and this will be far from a walk in the park. It’s finely balanced right now, but I think we can get it done.”

Even if Loterías succeeds in listing, bankers harbour few hopes that it will augur well for other companies in the continent. “Frankly, nothing else is doable in Europe,” the senior banker says.

Indeed, what was already a somewhat disappointing year for IPOs has rapidly degenerated into a depressing one over the summer – and not just in Europe.

Sliding equity markets have forced companies Facebook, Manchester United, Evonik and Groupon to shelve temporarily flotation plans. More than 200 IPOs worth an estimated $44.1bn have already been shelved this year, the most on record according to Dealogic.

Substantially more than half of all companies listed this year currently trade below their offering price – some significantly so.

And, given the current headwinds, the total volume of global IPOs looks likely to fall sharply from last year’s $281bn So far this year, only $139bn of flotations have been priced, Dealogic says, and bankers predict an exceptionally lean final quarter.

Bankers say the choppiness of equity markets has been the biggest impediment for IPOs, as it makes marketing and pricing shares over a three-four week process extremely difficult.

“Our pipeline, like that of other banks, is nice, but I see very few of them going to tap the market in the very short term,” says Laurent Morel, global head of equities at Société Générale.

Asian and US markets, which have been more resilient than Europe, are also suffering from delays and cancellations.

The launch of a handful of Hong Kong IPOs in the past two weeks had given investors hope that the August drought had ended in Asia at least. Small deals, such as shoemaker Hongguo’s $148m listing, have found enough interest to cover their books.

Yet market volatility has dashed hopes for a wider recovery, and four more Asian deals have already been pulled this month. Sany, a big Chinese construction machinery group which is seeking to raise $3.3bn in a Hong Kong listing, recently postponed the retail tranche of its offering.

XCMG, a rival of Sany looking to raise up to $1.5bn, has delayed its roadshow by one week, and it is scheduled to start next Monday.

Citic Securities, China’s largest brokerage, is marketing a listing worth up to $1.94bn, but bankers say it is still on schedule – largely thanks to the strength of its cornerstone investors.

“The pipeline is healthy, but the primary side is slow,” says Richard
Cormack, head of new equity markets at Goldman Sachs.

“Emerging market activity is traditionally largely IPO driven, and IPOs are the most vulnerable to market volatility . . . We’re seeing deals get delayed until the markets are calmer.”

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