OREANDA-NEWS. September 26, 2011. The recent turmoil being experienced in global financial markets is likely to put pressure on initial public offering (IPO) activity across the globe - PwC has found that a significant number of IPOs have already been shelved in the first two weeks of August, reported the press-centre of PwC.

Between 1 and 15 August, 10 IPOs* scheduled to take place at major global exchanges have failed to float during a period which has been dented by the eurozone debt contagion and the US debt-ceiling crisis.

In the first half of August the most affected country was the US, with 9 IPOs pulled and only three completed. Hong Kong (one pulled, none completed) and London were less affected, but suffered already from comparably low IPO activity. Only six IPOs in these markets have taken place as planned.

At the start of the year, global IPO markets looked to be the most active year since 2007.* In the first half of 2011 there were 672 IPOs globally that raised USD 111 billion, an increase of 10% as compared to the same period of 2010.

From the start of 2011 to 30 June Russian companies completed 7 IPOs and recorded proceeds of USD 3.5 billion.

< The S&P 500 Volatility Index (VIX Index), which tracks volatility of S&P 500 index options and is a key indicator for investors’ appetite for IPOs, jumped to over 47 on Tuesday 9 August, indicating increased caution for potential IPO investors. 

With the exception of a spike in March, the VIX Index had been on steady decline for over a year and was approaching 15, which is considered to be a favourable range for pricing IPOs.  The lowest volatility in recent years was at the end of 2006 when the VIX Index approached 10, coinciding with a high point for historical IPO activity. 

According to PwC, the current jump may be cause for immediate concern; however, it doesn't come close to the October 2008 high of 89, when IPO activity was at an all-time low.  According to PwC, if the VIX Index declines during the remainder of August through to early September, IPO activity may recapture its prior buoyant levels of activity for the balance of 2011.

Over the past week both the FTSE 100 Volatility Index and the HSI (Hong Kong) Volatility Index reached their highest points since March 2009, indicating that high volatility is not unique to one specific market but is in fact a global observation. 

Falling share prices, volatility indices at record highs, and a spike in pulled IPOs can be considered as indicators for a poor outlook on future IPO activity over the next 6 to 12 months.

Although no IPOs were pulled in London during the period, only three floats took place and these were all conducted on the AIM market.

China still completed 13 IPOs, indicating that the brunt of negative impact is mainly being felt in the developed markets.

The optimism at the beginning of the year surrounding an uplift in IPO market may be short lived, with continued market volatility full year expectations for IPO activity may have to be revised downwards.

Macy Coffey, PwC Capital Markets Group Leader, made the following comment:

"In the first half of 2011 we witnessed recovery of optimism among investors which inspired Russian companies to consider an IPO and some even initiated the IPO preparation. However, challenging market environment and global economic instability can impede the coming IPOs and change the outlook for listings for the whole of 2011.

Despite challenging conditions in the market, IPOs are still possible if there is an attractive equity story, the IPO is thoroughly prepared and the company sets a reasonable offering price."

Despite lingering uncertainty regarding the economic outlook, PwC notes that short-term market events typically should not impact the process companies undertake to prepare for an IPO. 

Notes to editors:
*Source: Dealogic