Combined global debt and equity capital market transaction volumes hit US$7.34 trillion in the first nine months of 2023, according to Refinitiv. That’s a big number by any stretch.
Keeping that number in mind, think about the breakdown of analysis and chatter around capital markets. While the massively altered bond market conditions brought about by accelerated interest-rate rises reasonably generated a lot of attention, a chunk of market and media analysis and chatter was also dedicated to equity capital markets.
With that in mind too, factor in the fact that of that big number at the top, ECM accounted for a paltry 5.5%. That renders it a capital markets sideshow. Once syndicated lending data is added, ECM will barely be even a rounding error. And then take into account that 18% of ECM volume of US$403 billion in the first nine months of the year was made up of convertible bonds (a hybrid debt/equity instrument). Capital-raising activity of US$330 billion in the form of common stock becomes less a rounding error, more an irrelevance. Even more so when US$240 billion of the money went not to companies but to selling institutional shareholders in secondary offerings.
Within the knot of capital markets triviality that ECM has become, the United States and Europe are struggling. China accounted for 27% of global issuance. That’s more than the US, where ECM activity still only made up 26% of global volumes despite having risen by 69% year-over-year. Global IPO volumes fell 23% to a seven-year low. US-listed IPOs, even including the US$5.2 billion listing of UK semiconductor and software design company ARM Holdings, raised a paltry US$18 billion. China-listed IPOs saw a 23% decline in volume but still raised US$43 billion, almost 2.5x the US tally. (Just to round out the global picture, EMEA IPO proceeds fell 23% to US$20 billion.)
Technical vs emotional
Beyond the data, the market and social media chatter around capital markets remains fascinating. Before I go any further, and pre-empting cries of “yes, but what about…”, I’ve been around long enough to know that debt and equity are different. And that there’s an alternative universe of early-stage and pre-IPO sources of private debt and equity and that public capital markets don’t tell the whole story. But even taking that into account doesn’t change the narrative.
What’s interesting about the talk around primary bond markets is that it’s about market technicalities. How will higher underlying government bond yields and wider credit spreads impact market activity? How does the market’s redemption profile look over the next two years? Will investors demand additional spread to compensate for macroeconomic uncertainty? How are highly leveraged borrowers dealing with crippling refinancing rates? Are we facing a wave of defaults and restructurings as borrowers with high floating-rate exposures are pushed over the edge?
Meanwhile, the market talk around primary equity markets is a lot more about listing venues and about winning hearts and minds around efforts to maintain or grow status as a financial centre. As if financial centre status is all about equities.
I’m frankly bewildered by the extent to which companies that opt to switch listing venues or the venues that companies with upcoming IPOs might choose attract almost teary-eyed quasi-nationalistic fervour. And that single decisions – such as that of ARM Holdings to list on Nasdaq rather than in the United Kingdom – are portrayed as life-or-death decisions for the future of a country’s financial standing in the world.
ARM and parent company Softbank went through rounds of aggressive – and official – strong-arming (ultimately unsuccessful) to try to get ARM to list in London. From the London Stock Exchange, to government ministers (the City minister and Treasury ministers) all the way up to the Prime Minster. Think about that: the Prime Minister of the UK putting heavy pressure on a company to list in London. That’s patently ridiculous.
Change of venue
We had similar chatter when Linde AG, the global industrial gases and engineering company, delisted from the Frankfurt Stock Exchange earlier this year in favour of the New York Stock Exchange. And more recently, when CRH plc, the building materials company, and Smurfit Kappa, the packaging company, opted to transition their primary listings from Euronext Dublin to the NYSE.
Linde said that “after due consideration and analysis, Linde’s management and board determined that shareholders of Linde plc have become negatively impacted by various factors associated with the stock being dual listed in the United States and Germany”. Since Linde merged with the British Oxygen Company in 2006 and with Praxair of the US in 2018, you’d be hard pushed to describe it as a German company.
And despite its Irish roots, CRH today is hardly an Irish company. North America represents 75% of group EBITDA and the company says the US is expected to be a key driver of future growth. The company said it believes a US primary listing “will bring increased commercial, operational and acquisition opportunities for our business, further accelerating our successful integrated solutions strategy and delivering even higher levels of profitability, returns and cash for our shareholders”.
The acquisitive Smurfit hasn’t been “Irish” since its mergers with Stone Container Corp (US), Kappa Packaging (Netherlands) and many others. The company is now in the throes of a merger with US company WestRock. After the merger, its shares will be listed on the NYSE; Smurfit WestRock is keen to be included in US equity indices as soon as possible.
Global companies – and the likes of ARM, Linde, CRH and Smurfit are global – will always prefer listings that offer them better liquidity, a savvier investor base, closer alignment with revenues and clients, and ultimately higher valuations. None of which come from history. And financial-centre activists will do well to remember that company domicile and listing are very different things.