Southeast Asia’s initial public offering (IPI) activity slowed down in the first quarter, amid high interest rates and inflationary pressures, Ernst & Young Consulting said Tuesday.

EY said in a statement that across Southeast Asia, IPO activity was lukewarm, with a total of 38 deals raising $1 billion, down from 51 deals raising $1.4 billion in the first quarter of 2023.

Exchanges in Southeast Asia that were most active in the first quarter were Indonesia (20 IPOs raising $224 million), Malaysia (9 IPOs raising $279 million) and Thailand (6 IPOs raising $273 million).

During the quarter, the Philippines, Singapore and Sri Lanka each saw one IPO on their exchanges, raising $202 million, $20 million and $2 million respectively.

“The IPO market in Southeast Asia was subdued as high interest rates and inflationary pressures continued to impact the confidence levels of both investors and issuers,” said Chan Yew Kiang, EY Asean and Singapore IPO Leader.

According to him, this challenging economic environment has prompted companies in the region to recalibrate their strategies, placing a heightened emphasis on achieving profitability.

“As inflationary pressures begin to subside, the anticipated reduction in interest rates is likely to create a more favorable climate for IPOs,

“A strong performance from the global IPO markets will encourage Southeast Asian companies that have been hesitant to go public to re-evaluate their position,” he added.

Driven by a subdued IPO market sentiment across the region, Asia-Pacific IPO activity in the first quarter recorded 119 deals and $5.8 billion in proceeds, down 34 percent and 56 percent year on year, respectively.

This decline was especially sharp in China and Hong Kong, with the number of deals decreasing more than half and deal size falling by nearly two-thirds.

According to EY, both markets have experienced a consistent decline in IPO activity over the past few years.

There have been only ten IPOs so far this year in Hong Kong, with two exceeding $100 million in deal size, marking a historic low since 2010 by proceeds.

It is noted that Japan was the only market in Asia-Pacific to see a slight increase in deal count in the first quarter, with the Nikkei Index hitting an all-time high in February.

The Europe, the Middle East, India and Africa (EMEIA) IPO market, however, witnessed an impressive growth at the start of the year, launching 116 IPOs totaling $9.5 billion in the first quarter, up 40 percent and 58 percent year on year, respectively.

This surge was attributed to larger average deal sizes from IPOs in Europe and India, which enabled EMEIA to maintain first place in global IPO market share by proceeds since the fourth quarter of 2023.

Since 2019, India has rapidly gained prominence, particularly in the number of IPOs, and has now emerged as a standout performer, according to EY.

The Americas also continued to exhibit strong performance in IPO activity compared with both the previous quarter and first quarter of 2023, with 52 deals and $8.4 billion in proceeds, up 21 percent and 178 percent, respectively, year on year.

Each of the top seven deals in the first quarter raised over $500 million, versus just one in the first quarter of 2023.

The United States, after experiencing a 20-year low in proceeds in 2022, has finally witnessed a noticeable recovery in the first quarter of the year, riding on the wave of the market rally from last year, said EY.

Overall, the global IPO market saw 287 deals raising $23.7 billion in the first quarter, a 7 percent decrease in volume but a 7 percent increase in proceeds year-over-year, respectively.

It is noted that a majority of key IPO markets witnessed a significant number of newly issued IPOs whose current share prices surpassed their offer prices.

EY opined that this trend could indicate an improvement in valuations and pricing levels, reflecting growing confidence among issuers and investors.

In the first quarter, approximately ten private equity-backed IPOs came to the market, five of which were featured among the top ten global IPOs, a testament to their significant market presence.

The promise and reach of the artificial intelligence (AI) vertical is currently experiencing significant growth within the private realm, with the majority of AI and AI-associated businesses still in the seed or early stage of venture capital (VC) rounds.

This suggests there could be a surge in IPOs in future years as these companies mature in the private domain before making a public debut.

“As 2024 unfolds, participants in the IPO market are entering uncharted territory,” said George Chan, EY Global IPO Leader.

According to him, IPO candidates are influenced by the recent pivot in investors’ preference toward proven profitability in an altered interest rate landscape, and are doing this while facing the intricate dynamics of an intensified geopolitical climate and the buzz around AI.

“To succeed in this shifting environment, IPO prospects must remain flexible and prepared to seize the right moment for their public debuts,” he said.

According to EY, the IPO market thus far in 2024 has shown signs of vigor, with an upswing in IPO activity.

Despite the restrained overall market activity in previous years, it said there’s an uptick in enthusiasm from both IPO issuers and investors, hinting at shifting market dynamics and a more welcoming landscape for public listings​​.

EY noted that the global economy will remain on a soft growth trajectory in 2024, with developed markets likely to see modest growth while emerging markets stay on a firmer growth path.

According to EY, stock markets have already priced in the expectation of rate cuts in various major economies.

“Just as investors and IPO candidates adapt to the new norm of higher interest rates and reduced liquidity, they will also need to navigate through additional layers of complexity in the geopolitical and global election landscape in the IPO market,

“As elections this year amplify uncertainty, IPO candidates will need to closely monitor election outcomes and assess how specific policies could affect stakeholder interests and re-evaluate IPO strategies and timing as necessary,” it said.

EY : technology industry outlook brighter than 12 months ago, with GenAI emerging as top opportunity for 2024