London has emerged as the leading destination for cross-border IPO activity – attracting 480 IPOs raising $110billion from cross-border issuers originating from a diverse range of markets around the world. This represents 34% by number and 15% by value of the total IPOs on the London Stock Exchange, and 38% by number and 50% of all cross- border IPOs globally, according to new study.
“Cross-border IPO activity will remain significant – until emerging market exchanges become the developed markets of tomorrow,” the study added.
A new study by PwC and Baker & McKenzie titled: ‘Equity sans frontieres’ – trends in cross-border IPOs was recently released, analysing cross-border IPO data from the past ten years and polling more than 200 global investment bankers, issuers and stock exchange representatives. The report shows that cross-border IPO activity accounted for almost a fifth (19%) of the global IPO proceeds raised in 2011.
During the ten year period (2002 – 2011) cross-border IPOs accounted for 9% (1,172) of the total number and 13% ($220billion) of the total proceeds raised by all global IPO activity.
The previous decade witnessed the rise of Asian companies as originators of cross-border IPOs. Chinese companies have completed the largest number of international listings with 30% (347) of all cross-border IPOs raising $29billion.
The study revealed that London and New York are the most attractive destinations for foreign issuers (480 issuers raising $110billion and 264 issuers raising $56billion respectively).
Issuers from the Middle East raised $3.7billion through 15 cross-border IPO’s with London accounting for 80% of these transaction by volume and 97% by proceeds raised.
“Exchanges in developing markets have typically not had the depth to sustain capital requirements to support their growing economies. This has started to change. With an increasingly sophisticated capital markets infrastructure in emerging markets, there will be more opportunities for issuers to raise capital locally or regionally, beyond traditional listing centres,” Clifford Tompsett, capital markets partner and head of PwC’s IPO Centre, said.
“The development of cross border activity is a fascinating story that mirrors the broad economic, social, political and technological trends of our age. It’s the story of new economic powers, the struggle of established exchanges to maintain their dominance and the new economic realities following the debt crisis. It also reflects the extent of globalisation as investors, armed with ever increasing amounts of real time data, shift capital around the world,” Edward Bibko, capital markets partner and Head of Capital Markets, EMEA at Baker & McKenzie, said.
Companies within EMEA, between 2002– 2011, originated the highest level of cross-border IPOs, with 421 companies raising $121billion. Of this, 335 IPOs raised $97billion within EMEA, compared with 74 IPOs from EMEA into the Americas raising $17billion and 12 IPOs from EMEA raising $7billion into Asia-Pacific.
“Based on our study, issuers from the United Arab Emirates have completed the most number of cross-border offerings during the 2002 to 2011 period. This is perhaps no surprise given the diversity within the UAE economy and its open trade links with the rest of the world. We perhaps may expect to see broader regional cross-border transactions as other markets develop and internationalise,” Steven Drake, Head of Capital Markets in the Middle East region PwC said.
New York is the second most attractive destination for overseas issuers, attracting 264 companies to American exchanges which raised $56billion. Introduction of more onerous regulations such as Sarbanes-Oxley may have dampened the attractiveness of the US markets for cross-border issuers, with number and amount raised almost half those of London. However the recent enactment of the JOBS Act by the US government is attracting renewed interest from foreign issuers.
Around 51% (134) of inbound issuers into the USA originated from China, raising $20billion, often through so called ‘backdoor’ listings. Some of these listings did not undergo the scrutiny of the normal IPO diligence and regulatory processes which contributed to a number of high-profile business and corporate governance failings.
Asia- Pacific was the region with the highest level of outbound activity. Asian outbound activity was driven by China: 347 cross-border IPOs originated out of China, 39% of which went to the USA.
Singapore is a regional hub for cross-border IPOs, the majority of which originate from either Mainland China (71% of SGX inbound IPOs, 130 issuers raising $5billion) or Hong Kong (14%, 26 issuers raising $6billion).
“We were surprised by some of the findings. Most market participants will be aware of the phenomenon of Chinese companies listing in the US, but not many realise the number and activity on other markets such as Singapore and Frankfurt Another surprise was the number of US companies that listed overseas, mainly in London on the AIM market,” Clifford Tompsett, capital markets partner, PwC said.
In November 2012, members of the International Organization of Securities Commissions (IOSCO) met to discuss the growing importance of emerging securities markets in the global financial system. They recognised that as these economies grow in prominence, the evolution of proper securities regulation is vital to establishing developed markets of the future.
The findings in Equity sans frontieres support this view. With robust regulation, deeper capacity and more sophisticated market infrastructure that will develop over time, these markets will become the true engine of global economic growth.
“We are seeing growth in investor interest with stock market activity improving on most of the Middle East exchanges albeit much lower than pre-crisis levels. The recent enhancements in the listing regulations should augment investor confidence in cross-border fundraising activities but will in part depend on the region maintaining political stability,” Steven Drake, partner, PwC, added.