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Capital Markets Weekly: Busy week for flotations, Chile plans Green Bond Debut

18 April 2019 Brian Lawson

This week, eight US IPOs are slated to raise USD2.5 billion, versus the prior 2019 US total of USD6.6 billion in proceeds from 26 IPOs. Of these, the largest is for online imaging service Pinterest, which is selling 75 million shares at USD15-17 each, with videoconferencing firm Zoom placing 20.9 million shares at USD28-32 each.

Swiss railway manufacturer Stadler Rail completed this year's largest European IPO successfully. It placed 35 million shares at CHF38 each, with a further 5.3 million shares available for the green-shoe facility. The shares rose 13.4% during first-day trading on 12 April. The offering valued the firm at around USD3.8 billion.

It was followed (and surpassed in volume) by Italian payments firm Nexi, which priced its IPO at EUR9 a share, raising EUR2.01 billion from disposals by its existing shareholders and a EUR700+ million capital increase. According to the company, over 340 investors were involved including 100 from Italy. Trading started weakly on 16 April, with shares trading to a 9% first-day discount.

The two share sales revive previously-lacklustre activity in the European primary equity markets. PWC data suggest that just EUR700 million of European IPOs were completed in Q1 2019, versus EUR13.1 billion in the prior year. 18 companies listed within 2019 in the period to 12 April, fewer than half the number in the corresponding period of 2018.

African internet retail firm Jumia, which operates in 14 African countries, notably Egypt, Morocco, Nigeria and South Africa, has become the first African start-up to gain a New York listing. It placed almost USD200 million of shares, valuing the firm at USD1.1 billion. Jumia has several international backers including MTN, Orange, Millicom International, AXA and Goldman Sachs. The issue opened at a 52% premium to its USD14.5 issue price and made a first-day gain of 75%.

Chinese stockbroker Shenwan Hongyuan has launched a sizeable capital increase through the Hong Kong stock exchange. It is seeking up to USD1.25 billion from the sale of 2.5 billion shares at between HKD3.63-3.93 per share, plus a 15% green-shoe. Proceeds will fund the broker's international presence and improve its cross-border capacities for Chinese companies in international markets. The deal is backed by 13 cornerstone investors with commitments of USD829 million. The deal should price on 18 April and start trading on 26 April. In Q1, South China Morning Post reports that Hong Kong IPO activity fell 16%, with 37 deals raising USD2.6 billion.

Saudi Arabia's Arabian Centres, which operates 19 shopping malls in 10 cities, is planning an IPO within the second quarter of 2019. It intends to sell 20% of the company with a domestic listing, to raise USD1-1.2 billion. Proceeds will be used to reduce the firm's debt.

Chile's Finance Minister Felipe Larrain announced that Chile plans to issue debt internationally in H2 2019, and that it was likely to use a Green Bond within its funding. He suggested that total international funding might reach USD1.5-2 billion, within total funding of just under USD9 billion, with the remainder being raised domestically. A Chilean spokesperson noted that Green issuance "doesn't necessarily entail more competitive rates" but "allows us to diversify our investor base".

Lastly, the Greek administration has requested permission from the European Stability Mechanism to undertake early repayment of some EUR3.7 billion of borrowings from the International Monetary Fund. Assuming the repayment is undertaken, Greece is expected to return to the markets in Q2.

Our Take

The completion of several sizeable - and largely successful- IPOs is a clearly welcome development. It contrasts sharply with Lyft, whose share price now stands at USD56.1, versus the USD72 set when pricing its IPO, reportedly reflecting substantial short selling and overhang from the pending Uber share sale. Uber is still expected to seek up to USD10 billion, having issued a USD1 billion place-maker filing. Greater caution in pricing and sizing IPO deals should assist other transactions to gain investor support: Pinterest's conservative approach is noteworthy, while Nexi's initial performance serves as a note of caution.

Chile's Green Bond plans indicate the further gradual development of the sector. The Netherlands is also planning a debut sovereign Green sale this year. A sale of debut Green bonds this week by La Banque Postale reportedly achieved modest actual cost savings as well as deepening its investor base. Such tangible benefits should encourage further gradual expansion of environmentally and socially-oriented debt sales.

Sentiment towards Greece continues improving. Its 10-year bond yield closed at 3.29% on 15 April, its lowest level since 2005: it started 2019 at around 4.4%. The IMF loans expire in 2019 and 2020, and cost around 5%, proving scope for tangible debt-service savings by their replacement. They also have symbolic importance: according to Greek Prime Minister Alexis Tsipras "we are gaining points of freedom" by the move.

Posted 18 April 2019 by Brian Lawson, Senior Economic and Financial Consultant, Country Risk, IHS Markit

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