CAMBRIDGE, Sept. 3, 2008 – The Committee on Capital Markets Regulation (“Committee”) today released its findings documenting the huge second quarter decline in IPO activity in the United States and foreign markets, a continuing reduction in the ability of U.S. markets to capture IPOs, and a failure by U.S. markets to list any of the largest IPOs in 2008.
To be sure, these findings, part of the Committee’s competitiveness update for the second quarter, underscore the savage impact of the credit crisis on U.S. markets. But they also once again showed the continuing deterioration in U.S. financial market competitiveness.
The Committee, an independent and nonpartisan research organization dedicated to improving the regulation and enhancing the competitiveness found that there were just 67 global IPOs by foreign companies in 2008 through Q2 valued in aggregate at $18.4 billion, compared with 335 in all of 2007 valued at $95.8 billion, the Committee said.
U.S. IPO activity was equally anemic. Through this year’s second quarter, there were just 27 IPOs by U.S. companies, compared with 220 in all of 2007, the Committee added, indicating U.S. IPO activity in this year’s first half ran at less than a quarter of the year-earlier pace.
Notwithstanding the extraordinary market conditions, five trends in 2008 stand out.
- Foreign issuers continue to rely heavily—and, now, almost exclusively—on the private Rule 144A equity market. From 1996 to 2006, 64.1% of global IPOs by foreign companies (by value) in the U.S. were Rule 144A IPOs. By 2007, that figure had increased to 87.9%. In 2008 through Q2, it was an astounding 95.6%.
- U.S. exchanges are capturing a decreasing share of global IPOs. From 1996 to 2006, 28.7% of IPOs by foreign companies outside their home market (by value) listed on a U.S. exchange. By 2007, that figure had declined to 6.9%. In 2008 through Q2, it was a trivial 1.7%.
- None of the largest global IPOs are in the U.S. In 2008 through Q2, 0 of the top 20 global IPOs were listed on a U.S. exchange. By contrast, in the eleven-year period from 1996 to 2006, on average, 5 of the 20 largest global IPOs were listed on a U.S. exchange.
- IPOs of U.S. companies listed only abroad—an unheard of phenomenon before 2007—increased in Q2 2008. Through Q1, just 0.1% of U.S. IPOs by value—representing one of 12 U.S. IPOs—was listed only abroad. Through Q2, however, that figure had increased to 2.2%, representing 6 of 27 U.S. IPOs. In the seven-year period from 1996 to 2002, 0.0% of U.S. IPOs (by value) were listed only on foreign exchanges.
- Delistings by foreign companies from the New York Stock Exchange (“NYSE”) appear to have slowed. From 1997 to 2006, the foreign delisting rate from the NYSE averaged 5.3%. When in 2007 the rate spiked to 15.1% (representing delistings by 68 foreign companies), some believed this reflected pent-up demand in response to the SEC’s June 2007 easing of deregistration requirements. Based on data through Q2, we project that 20 foreign companies will delist in 2008, representing a foreign delisting rate of 4.8%. It is unclear whether this reduced rate reflects a return to pre-2007 levels following a release of pent-up demand in the second half of 2007 or the extraordinary market conditions prevailing in 2008.
In summary, Q2 data must be read in the context of very low IPO levels due to the market turmoil, the Committee said in its update. However, it added that the competitive position of the U.S. continues to deteriorate with respect to historical standards. Without major reforms in shareholder litigation, the regulatory process and shareholder rights, we expect these trends to continue, the Committee concluded.
Beginning with its December 2007 report—“The Competitive Position of the U.S. Public Equity Market,” the Committee has tracked on a quarterly basis 13 separate measures of the competitiveness of U.S. capital markets. These measures fall into five categories: (1) equity raised in public markets; (2) the relative size of the private Rule 144A and public equity markets in the U.S.; (3) cross-listings and delistings by foreign companies; (4) trading on U.S. and non-U.S. stock exchanges; and (5) regional origin of U.S. investment banking revenue. Historical data through Q2 2008 is now available on the Committee’s website at www.capmktsreg.org.
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