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UK IPO sellers show how to navigate volatile markets

Euro London fotolia
By Sam Kerr
25 Jun 2019

London’s most recent IPO issuers can exhale with relief after pricing their deals just before an increasingly turbulent Conservative leadership contest and the increasing likelihood of a disorderly Brexit spooked investors.

Last week Trainline priced its £1bn IPO. The transaction soared in trading and has been one of a flurry of UK deals to have been printed in the last few months.

GlobalCapital reported last week that IPO volume in London is up year-to-date, despite the political uncertainty hanging over the market, driven by cross-border issuance and issuers using the delay in the UK’s departure from the EU as a chance to get something done.

The turnaround in UK ECM is remarkable given the dearth in IPO activity in the first three months of 2019, as issuers stayed away for fear that the UK would crash out of the European Union without a deal on March 31.

The extension to October 31 does not mean the UK won't leave without a deal but it has allowed sellers to approach investors without a daily stream of seemingly imminent Brexageddon type news from ruining their risk appetite.

Those that sold deals between April and the summer may have taken advantage of a golden window for UK ECM, because once the UK has a new prime minister once the Conservative leadership election is concluded, volatility could be back with a vengeance as the next Brexit deadline nears.

Former foreign secretary and London mayor Boris Johnson is the odds-on favourite to succeed Theresa May as the leader of the ruling Conservative Party, and therefore become the UK’s next prime minister.

Johnson has used his campaign to pledge that the UK will leave the EU on October 31, with or without a withdrawal agreement. Parliament has already rejected the withdrawal agreement between the EU and the UK a number of times and the EU insists it cannot be negotiated. Both candidates in the leadership run-off suggest they are willing for the UK to leave with no deal

That would almost certainly be chaotic, given the UK government’s own predictions of dire consequences. Such has been the congestion in parliament that Brexit discussions have wrought, legislation still has not been passed returning power to the UK parliament once the UK is out of the EU, covering areas like fisheries, agriculture, trade and financial services.

Between now and then lies great uncertainty regardless. It is not inconceivable that even if Johnson wins the Tory top job that there won't then follow a general election. And that's just on the domestic front. There will still need to be more discussion between the EU and the UK. everything from remaining in the EU to a no deal Brexit is seemingly on the cards.

Issuers who priced an IPO in the last couple of months have shown the value in being flexible and coming to market when conditions are not ideal, but good enough to get a deal done.

Away from the UK, global political volatility is high. The US's trade war with China is the biggest example of that. Issuers should look at the success of recent UK IPOs and not delay listings in the hope that ideal issuance conditions are just around the corner. 

By Sam Kerr
25 Jun 2019