The ASX is confident 2023 will see the end of the capital drain, after five months of a barren market.
As covered by Proactive Investors, initial capital has been very hard to come by on the ASX in the 2023 financial year so far, with just $27.8 billion raised, well down on this time last year.
But James Posnett, general manager of listings at the ASX, says there’s reason to be optimistic about the coming six months.
IPO market to turn bullish
“There’s no doubt it’s not been the best year for IPOs, but the conversations we’re having with a number of companies that are in the pipeline suggests we’re going to get some really meaningful interest next year, particularly around the middle of the year,” Posnett said.
“Typically what we see in this cycle are large, lower risk companies come to the market and IPO first, and that begins a trend where higher growth, higher risk companies come back to the market as well.
“2012 was the last time we saw the IPO market as quiet as this and in May 2013 Mighty River Power (now Mercury Energy), a large, revenue-generating, profitable business, listed on the ASX and that opened the market back up.
“Interestingly, versus other exchanges, we’ve done more secondary offerings, through SPPs and rights issues, than any other exchange, and in terms of capital raised we’re ranked sixth out of more than 100 exchanges.
“That’s something we can be quite proud of as the Australian market.”
Slow FY23 following huge FY22
The FY23 capital drain may appear concerning, but Posnett said it's followed an “extraordinary” FY22.
“It was a record-breaking year, so even without the macroeconomic and geopolitical conditions we’ve experienced this year, there would have been a slowdown in any case,” he said.
“That was driven by the government stimulus on the back of COVID, combined with all-time highs across the market and a general sense of optimism.
“Lots of companies were looking to list. 14 of the top 20 IPOs last year were backed by private equity or venture capital as people looked to get some liquidity from their investments.
“The quoted market cap of new listings reached an all-time high, and we had the highest number of billion-dollar-plus IPOs ever, with nine over a billion.”
The winding back of COVID-induced government stimulus packages has played a big role in the capital drain, alongside geopolitical factors such as the war in Ukraine, and the rising cost of living.
“This has meant the market has become very volatile, and when it is volatile it is very difficult to execute an IPO,” Posnett said.
“Recently we have seen the volatility index come down, and we will need it to remain at lower levels for an extended period of time to see the confidence in the stability of the market return.”
Secondary market
It hasn’t all been doom and gloom on the ASX this year, however.
The vast majority of capital raised via the ASX this year has come via secondary offerings, which Posnett says is proof of the ASX’s controls.
“We have some really efficient, effective and sensible settings that make it generally more straightforward to raise secondary capital on the ASX than on other exchanges,” Posnett concluded.
- Daniel Paproth