ECM: seize the day, the time is now
Equity capital markets need to buy the rumour and sell the fact
Europe’s equity capital market is rife with expectation of a rebound this year. The market has been hoping for a way out of the deep freeze that has suppressed it for the past two years. The time is now, and there is no time to waste.
So far, although US and European share prices have been on a tear since late October, equity issuers are holding back.
While bond markets are bubbling with activity, ECM is almost as sluggish this January as last.
Issuers have deals to bring. In GlobalCapital’s ECM outlook survey for 2024, half of respondents expected IPO volumes to be at least 20% higher than last year, and two-thirds foresaw a boost of at least 10%.
They said there was a heavy pipeline of flotations in Europe and the UK — including that of Athens International Airport, priced yesterday — and a better interest rate environment.
Investors are also “starved of paper” at the start of a new year, as one banker put it. Risk appetite is hearty, and that has shown up well in the few deals that have been done, notably block trades. Books have been well covered, discounts tight and aftermarkets generally compliant.
The size-weighted average discount in the EMEA blocks market was remarkably consistent last year, according to GlobalCapital analysis of Dealogic data, with average discounts between 5.1% and 5.5% every quarter. This year so far, on the $3.1bn-equivalent of blocks that have been traded, the weighted average discount is 4.3%.
Despite all these fine signs, bankers say many companies are waiting to issue, until central banks press ahead with interest rate cuts, which they hope will drive stock prices up even further.
But as one ECM banker pointed out this week, the good thing about equity markets is that they don’t necessarily need an economic boom — they only really need the prospect of one.
Issuers, then, already have what they need to get going.
But in a year like this, tiptoeing around the market looking for the perfect window is taking a gamble. The events, political and economic, that could trip the market up and spoil the opportunity are legion. Issuers should recognise what is available here and now and take full advantage of it while they can.