More Than Half of Large IPO Companies with Over $1 Billion Valuation Trade Below Offering Price Amid 'Bubble Controversy'

[Photo by EPA Yonhap News]

[Asia Economy Reporter Park Byung-hee] Major foreign media reported on the 29th (local time) that the current stock prices of companies that attracted attention with large-scale initial public offerings (IPOs) exceeding 1 billion dollars this year are about half below their offering prices. Although the IPO market showed an unprecedented boom this year, there are concerns that it is not free from bubble controversies.

According to financial information firm Dealogic, there were a total of 43 cases where IPO sizes exceeded 1 billion dollars this year in the New York, London, Hong Kong, and India stock markets. Among them, 21 companies, accounting for 49%, currently have stock prices below their offering prices. In 2019, the proportion of companies with stock prices below the offering price one year after a major IPO was 33%, and last year this ratio was 27%. Compared to previous years, many companies' stock prices have underperformed after IPOs this year.

British food delivery company Deliveroo, Swedish oat milk company Oatly, and Indian electronic payment service provider PayTM have lost face as their stock prices plunged sharply after listing.

Deliveroo shocked the UK stock market by dropping 26% on its first day of listing and still has not recovered its offering price. Chinese ride-sharing company Didi Chuxing's stock price is more than 40% below its offering price. Despite warnings from the Chinese government, Didi Chuxing pushed ahead with its New York Stock Exchange listing, drawing the ire of Chinese authorities.

[Photo by AFP Yonhap News]

PayTM, noted for India's largest-ever IPO, saw its stock price fall more than 40% over two trading days after listing. PayTM raised 2.5 billion dollars through its IPO, achieving a company valuation of 20 billion dollars. However, its current market capitalization is around 15 billion dollars.

This year, the New York Stock Exchange's S&P 500 index rose by as much as 24%, continuing a strong stock market trend, leading to an unprecedented boom in the IPO market. Companies anticipated an influx of investors expecting stock price increases and thus sought to raise funds through large-scale new share issuances. However, as stock prices fell after listing, there are criticisms that companies may have excessively overvalued their corporate worth, misleading investors.

Ragu Narain, Head of Asia Pacific Investment Banking at French bank Natixis, pointed out, "Even if the underwriting banks advise companies not to set IPO target prices too high to prevent stock price drops on the first day of listing, companies want to raise large amounts of capital."

Major investment banks have also lost face. Goldman Sachs underwrote 13 IPOs exceeding 1 billion dollars this year. However, the stock prices of nine companies, including Robinhood and Didi Chuxing, are currently below their offering prices. Morgan Stanley underwrote 14 IPOs over 1 billion dollars, with six companies trading below their offering prices.

According to accounting firm Ernst & Young, the IPO size on the New York Stock Exchange has reached a record high of 330 billion dollars so far this year.

James Fleming, Co-Head of Equity Capital Markets (ECM) at Citigroup, explained that although risks increased as central banks' interest rate hikes became visible, the IPO market boom continued. Fleming said, "The global equity issuance scale has never exceeded 1 trillion dollars in a year, but last year, despite the COVID-19 situation, 1.1 trillion dollars worth of equity was issued. I thought we would never see that number again, but this year, by Thanksgiving, we are already approaching 1.5 trillion dollars. This is a very unusual situation."

This content was produced with the assistance of AI translation services.