IPO volume turning a corner?

Nasdaq COO Adena Friedman on the outlook for the IPO market.

With Equity IPOs on Ice, Debt Offerings Heat Up

By IPOs

While Wall Street has come a long way from the dark days of January, which saw the worst first 10 days of a new year ever, underlying trends suggest some areas of the market have been slow to regain investor confidence.

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Data from CUSIP Global Services showed total requests for new U.S. equity identifiers decreased 12% in April from March. However, requests for new corporate debt jumped 20% from March levels.

“Debt markets around the world are continuing to show evidence of strong activity in the pre-trade environment,” Gerard Faulkner, director of operations for CUSIP Global Services, said in a note. “While we are still off some of the highs reached in the first part of last year, the recent trend in the CUSIP request volume has been indicative of a healthy market for new debt issuance.”  

Part of the reason for the increased focus on new debt offerings is the ultra-low interest rate environment in the U.S., which has prompted companies to issue new debt to take advantage of low rates. Investors have also gobbled up corporate bonds in an environment where many types of developed-market sovereign debt issues little-to-no yield

Richard Peterson, senior director at S&P Global Market Intelligence, said as long as the rate environment continues to be accommodative, the trend of steady month-to-month increases in volume for debt issuance will continue.

“While this month’s growth trajectory was not quite as pronounced as we’ve seen in recent months, it appears that the appetite is still very strong for debt issuers,” he said.  

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Fed Funds futures, which gauge the market’s forecast for a change in monetary policy, shows just an 8% likelihood of an interest rate increase at the Fed’s next policy meeting in June. The odds increase to 58% for at least one rate rise by the central banks’ December meeting.  

Still, Adena Friedman, chief operating officer at Nasdaq OMX Group (NDAQ), said in light of the market’s recovery from the weak first quarter, confidence is coming back into the equity IPO market.

“We have an enormous amount of pent-up demand of companies who really want to come to the market,” she said on FOX Business Network’s Mornings with Maria. “They’ve gone through their filings, they’re ready. The SEC has kind of given them their blessing. Now it’s just a matter of when they think they can have a good opening for themselves.”

She declined to say how many companies are waiting in the wings to debut on the public markets, but noted that of the 22 companies that have gone public this year, 19 of them have listed on the Nasdaq.

“As we look at going forward into the rest of the quarter, we are starting to see companies put dates on the calendar, they’re starting to deal with the realities of what their valuation will be for them,” she said.  

She said that what’s perhaps been both a positive and negative to IPO numbers in the first half of the year is new regulations that allow companies considering an initial public offering to test the waters and gauge investor sentiment before fully committing to listing shares on a public exchange. While that ability has kept some companies moving too quickly to market, it could help boost figures for equity IPOs in the latter part of 2016. 

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