Global initial offerings may show muscle in 2003
By Paul Scanlon
Bloomberg News Service
HONG KONG Verizon Wireless Inc. and China's Guangdong Grid Co. may help initial public offerings rise worldwide in 2003 as faster economic growth in the United States and Asia spurs demand for equity, investors and bankers said.
"People are more optimistic about economic growth in the U.S. and elsewhere next year, which makes them more comfortable about buying equity," said David Chapman, who helps manage $650 million in global shares at Towry Law Asia Ltd. in Hong Kong. "I'm getting ready for increased new issuance over the next 12 months."
Rising stocks may encourage more companies to sell shares to the public. Fifty-eight of 73 primary stock indexes posted gains in the fourth quarter, up from six in the previous three months.
Even so, global stock markets and economies probably won't rebound fast enough next year to lift initial share sales to 2000 levels. In Europe, IPOs are unlikely to top the $12.8 billion raised this year. The region's biggest first-time share sale due in 2003, the French government's sale of shares in gas utility Gaz de France, probably won't top 6 billion euros ($6.2 billion).
First-time stock sales worldwide slid 30 percent to $66 billion in 2002, the lowest in at least four years, Bloomberg data show. IPO fees for Goldman Sachs Group Inc., Merrill Lynch & Co. and other securities firms fell by an estimated $900 million.
A rebound in initial offerings would enable companies to raise funds, helping to revive stalled economies. It would also bring relief to Wall Street firms, which have cut more than 54,000 jobs since March 2001 as a slump in global stock sales and corporate mergers eroded investment-banking fees.
"Business will pick up once CEOs and boardrooms gain confidence in the economic outlook," said Jim Birle, co-head of global equity capital markets at Merrill Lynch.
U.S. IPO volume will probably pick up along with economic growth by the second quarter and may rise about 15 to 20 percent for the year, underwriters and investors said. That increase would still bring IPOs no higher than $34 billion for the year, less than a third of the value in 1999 or 2000.
This year, U.S. IPOs slumped 38 percent from a year ago to $28 billion. That would be the smallest amount raised since 1991's $16.8 billion, according to Dealogic LLC.
Recent share-price gains point to more U.S. deals next year. The Dow Jones Industrial Average has climbed 17 percent since Oct. 9, and the Nasdaq composite index has risen about 22 percent. The Bloomberg IPO index, which tracks the performance of U.S. stocks in their first year of trading, is up 17 percent for the period.
"That suggests to us a nice 2003" for IPOs, said Kathleen Smith, who manages the $15 million Renaissance IPO Plus Fund.
Smith expects Verizon Wireless, the cell-phone unit of Verizon Communications Inc., with $16 billion in annual sales, to complete a planned IPO in 2003. Meridian Automotive Systems Inc., Noveon Inc. and Loews Cineplex Entertainment Corp., each with $1 billion in annual sales, plan share sales. So do Converse Inc., a U.S. sneaker maker, and Orbitz Inc., an online travel company.
Maguire Properties Inc., the largest office-building owner in downtown Los Angeles, plans to raise as much as $890 million next year. It was one of 118 companies in the United States that had filed to go public in the year to Dec. 16, compared with 97 in the year-earlier period, according to Renaissance data.
China may generate some of 2003's biggest global IPOs as its government accelerates sales of state companies. Morgan Stanley's Philip Purcell and Credit Suisse First Boston Inc.'s John Mack were among the Wall Street chief executives who made several trips to Beijing this year to drum up business.
Guangdong Grid, southern China's biggest utility, and China Netcom Communication Group Corp., the nation's No. 2 fixed-line phone company, each plan initial share sales of more than $1 billion.
Chinese companies sold $4.9 billion of shares in first-time sales in 2002 and may double that figure next year, bankers said. This year's biggest sales were by Bank of China's Hong Kong unit and China Telecom Corp. Ltd., a unit of the country's No. 1 fixed-line phone company.
"Global markets have suffered, but for Asia, particularly North Asia, it's been business as usual," said Stephen Metcalfe, head of Asian equity syndication for CSFB, who helped sell $286 million of shares for China Oilfield Services Ltd. in November. "Next year in Asia is going to be all about China, China, China."
Asian companies outside Japan raised $19 billion from first-time domestic and overseas share sales this year, with $15 billion coming from China. Including Japan, the Asia-Pacific region accounted for 39 percent of IPOs globally, Bloomberg data show.
In Europe, companies are postponing planned IPOs as the continent's biggest economies lag U.S. growth.
Italian luxury-goods maker Prada Holding NV, which canceled a planned IPO three times in the past two years, won't go ahead with the sale before 2005, chief executive Patrizio Bertelli said in September.
T-Mobile International AG, Deutsche Telekom AG's wireless unit, has postponed an initial share sale indefinitely.
Enel SpA, the parent of Wind SpA, doesn't plan to take Italy's No. 2 phone company public for at least two years.
Europe's biggest share sale of 2003 may be by a company that's already publicly traded. France Telecom SA, Europe's most indebted phone company, plans to sell additional stock worth as much as 15 billion euros in the first quarter. France's government also plans to sell remaining stakes in companies such as Renault SA, the country's No. 2 carmaker.
For first-time share sales, "We're planning for 2003 being like this year," said Christian Meissner, co-head of European equity capital markets at Goldman.
For 2002, European IPOs are headed for their worst year since at least 1996. Flows to equity funds in Europe dropped 96 percent this year from their 2000 peak, according to Schroder Salomon Smith Barney.