DEALTALK-EU package unlikely to rescue stalling IPO market

Mon May 10, 2010 4:26pm BST

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(For more Reuters dealtalks, please double click on [DEALTALK/])

* IPOs stymied by VIX "fear index" jumping over 40

* Several deals in Europe pulled

* Outlook mixed while investors are focused on macro themes

By Alex Chambers

LONDON, May 10 (Reuters) - The euro zone's massive debt intervention and rallying stock markets are unlikely to tempt bankers to restart frozen initial public offering (IPO) plans in Europe yet because volatility remains too high.

In Asia Swire Properties pulled its $2.7 billion Hong Kong IPO, while closer to home smaller deals such as GSW Immobilien have been derailed by the volatility, along with the sale of two Spanish renewable energy companies, Engyco and Renovalia. [ID:nWEA0049] [ID:nLDE6461PB] [ID:nTOE64505H]

And while Danish ambulance service group Falck said it is pressing ahead with pre-marketing for its deal worth between $1.6 billion and $1.8 billion, there is no certainty of a sale. [ID:nLDE64916O]

"We had four very volatile sessions last week, as the market switched its focus from corporate earnings recovery to macro stability and the imbalances within the euro zone," said Craig Coben, head of European equity capital markets, at Bank of America Merrill Lynch.

Equity markets bounced dramatically on Monday, with Germany's Xetra .GDAXI and the UK's FTSE 100 .FTSE up around 5 percent, while France's CAC 40 .CAC40 was up nearly 9 percent after Europe's $1 trillion rescue package. [.EU]

But raising equity will take some time, with the Chicago Board Options Exchange Volatility Index .VIX -- described as Wall Street's fear gauge -- jumping to 41, twice the level at which bankers typically feel comfortable.

"Sure, markets are bouncing right now, lets see how this package goes. I think volatility is going to continue. Uncertainty is not good for markets," said the head of equity capital markets syndicate at a European bank. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For a graphic of the relationship between the VIX and IPO activity please click on: here ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

NOT EVERYBODY STRUGGLES

Bankers had started to feel hopeful that new issue volumes would accelerate after a strong open to 2010, when $74 billion of shares were placed globally -- four times first-quarter supply seen in 2009. [ID:nN09165245]

"As long as the market is focusing on macroeconomic stability at the expense of corporate earnings growth, the IPO markets may struggle. It's a macro versus micro debate. Certain firms are showing strong earnings recovery and resilient business models," says Coben.

The last major deals to go through were Spain's travel services company Amadeus (AMA.MC) with its 1.3 billion euros offering and Polish insurer PZU's $2.7 billion issue.

But the two deals sold at the lower end of their price ranges, illustrating the risk that a two-week marketing period can suddenly make a cheap deal look expensive.

"The IPO market is open but it's not indiscriminate. It is selective. Investors are prepared to consider new issues, but the quality filter is high," said Coben.

"Notwithstanding the market turmoil, strong companies can find a way to 'step between the raindrops' and go public during those periods when volatility is more moderate," he said.

Syndicate bankers are looking at a combination of factors -- a lower VIX, lower credit spreads and stability in government bond markets -- before the market comes back. (Editing by David Holmes)

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