CORPORATE FINANCING NEWS: GLOBAL EQUITY/DRS
By Denise Bedell
It was a benchmark year for the global IPO markets, in
more ways than one.
In the last quarter of 2010, IPOs broke records in terms of
issuance volumes, with $122.2 billion raised worldwide, accounting
for more than 45% of the full-year 2010 volume of $269.4 billion,
according to Thomson Reuters' 2010 equity capital markets
Total IPO issuance was more than double the value seen in 2009.
Issuance in the fourth quarter of 2010 alone surpassed 2009's
full-year volume of $113.9 billion.
In addition, emerging market issuers accounted for 50% of total IPO
issuance in 2010-raising $146 billion in new issues. Plus, three of
the largest IPOs on record were launched in 2010-all hailing from
Asia. Agricultural Bank of China raised $22.12 billion in late July
through a dual listing in Shanghai and Hong Kong, while AIG's Asian
life insurance subsidiary-AIA Group-brought in $20.5 billion with
its listing in October in Hong Kong. Japan's Dai-Ichi Mutual
insurance company raised $11.16 billion with its IPO on the Tokyo
Stock Exchange in April.
In spite of record-breaking IPOs and the massive $23.1 billion
equity issuance by General Motors in November, global equity
volumes were down for the full year 2010 versus 2009, primarily as
a result of a very slow start to the year. Global equity volumes
totaled $854.2 billion for 2010.
Global markets were dominated by just four sectors, according to
Thomson Reuters. Financial firms accounted for 32% of global
issues; energy and power for 16%; industrials for 14% of the
market; and materials accounted for 9% of the global equity
Underwriting fees for equity capital market transactions declined
in both the US and Europe but rose dramatically in Asia, according
to research from Bloomberg and Thomson Reuters/Freeman Consulting.
Globally, equity underwriting fees declined by 13.7% compared with
2009, to $20.3 billion, according to Thomson Reuters/Freeman
Consulting. However, this is in stark contrast to Asian markets,
where overall investment banking fees rose by 22.2% in 2010 over
Bloomberg reports that US equity transactions brought in $5.7
billion in fees in 2010, marking 10 years of consecutive declines
in US equity underwriting fees-aside from a brief bump after the
global financial crisis. In 2010 banks charged 3.46% on average for
equity underwriting, versus 4.73% in 2000. Despite the steady
decline, US equity underwritings cost about 66% more in percentage
terms than in Europe, according to Bloomberg data. European equity
underwriting fees averaged 1.8% in 2010.
Although pension funds and insurance companies have reduced their
exposure to European equities over many years now, this trend could
change in the coming year, according to Gareth Evans, a strategist
at Deutsche Bank. He says: "We believe we could be approaching a
turning point in this, given the higher yield of equities and an
expected outperformance of equities in 2011."
European pension funds' equity holdings as a proportion of total
holdings is quite low in comparison with global averages. In 2009,
European pension funds held about 35% of assets in equities versus
a global average of about 50%. US and emerging market pension funds
held around 60% of equity assets. Evans says: "We think that a
strong equity market performance in 2011 could alter this view as
we progress through the year." He says a total return of around 20%
in 2011 on the Stoxx should encourage a reallocation to
In the US, equity markets may see greater allocation by investment
managers as well. A report by the Investment Company Institute (
), found that weekly flows into US equity funds were positive in
mid-December, for the first time in eight months. The week ending
December 21 saw $335 million in net inflows into US equity funds.
However, this is in stark contrast to the $90 billion that ICI
reports was pulled out of such funds between May and