Equity capital markets see flat start to quarter

Equity capital markets activity has suffered its worst start to a quarter in more than a decade as a tentative rally this month failed to reignite interest in new share sales.

Companies have raised just $3.2bn through initial public offerings and secondary rights issues so far this month, the slowest start to a three-month period since the first quarter of 1998, according to Dealogic.

The largest share sale so far this month was an $876m rights issue by Brazilian telecoms group TIM Participações, which priced on October 4 and was led by Itaú BBA and Morgan Stanley. No IPO of note has been completed.

“We’ve been telling every company looking to IPO not to sell equity now unless they absolutely have to, as they won’t get anywhere near a fair price and it might not even succeed,” said Michael Findlay, a managing director at Moelis & Co, a boutique. “Not much is floatable right now.”

Rising fears over the eurozone’s sovereign debt crisis and the tepid global economic recovery have hit capital markets activity.

While safer companies have been able to continue to issue debt, equity issuance has been particularly affected. After a strong first half, issuance fell to just $101.8bn in the third quarter, a 53 per cent decline from the previous three months and the lowest quarterly volume since the first three months of 2009.

Bankers attribute the lack of activity to the choppiness of stock markets. In addition to denting appetite, volatility makes IPOs harder to price accurately.

Equity rights issues can be completed more quickly than IPOs to take advantage of windows of relative calm, but are susceptible to turbulence.

The Vix, Wall Street’s “fear gauge”, and its European equivalent have remained above 30 since early August, indicating the most sustained volatility since the financial crisis.

The turbulence has hit the flotation plans of many blue-chips this year, including Manchester United, Germany’s Osram and Evonik, Spain’s Loterias, and tech companies such as Zynga and Groupon.

Bankers harbour little hope for a resurgence of rights issues or floats for the rest of the year, given the uncertainty.

“The earliest we’ll see a meaningful recovery is the second quarter of next year, but most likely it will be in the second half,” Mr Findlay said. “Investors will then be looking at the 2013 growth figures, which hopefully will be a lot better than what we’re facing now.”