Bankers not expecting quick recovery as IPO volumes plunge

(Adds more context, details and background) LONDON/NEW YORK, Dec 20 (Reuters) - Investment bankers

are bracing for another tough year ahead after losing out on

lucrative fees from arranging share sales, as equity capital

markets (ECM) deals, including new listings, plummeted to the

lowest level since the early 2000s. With questions swirling around monetary policy and the

prospect of a looming recession, IPO advisers are not holding

their breath on a near-term recovery in the market for initial

public offerings (IPOs). Global share sales plunged this year as the IPO market froze

and hundreds of companies postponed stock market debuts, as

Russia's invasion of Ukraine and interest rate hikes from

central banks weighed on the broader economy. 'It's all about rates - the price of money changed, and it

has affected everything," said James Palmer, head of equity

capital markets (ECM) at Bank of America for Europe, the Middle

East and Africa (EMEA). Banks have underwritten $517 billion worth of stock sales to

date in 2022, a 66% drop compared with full-year 2021 and 29%

below pre-pandemic levels, according to Dealogic data. Barring exceptions such as Porsche's blockbuster

9.4 billion euro ($9.97 billion) offering in September, most

major deals including those of Swiss dermatology specialist

Galderma and SoftBank Group Corp-owned chip designer

Arm were postponed until market conditions improve. IPO advisers, therefore, do not expect a rebound in new

listings before the second half of 2023. "We're entering a new recessionary world we haven't seen in

a while," said Valery Barrier, who co-leads Citi's EMEA ECM

franchise. "We're going to see more primary capital being

raised, more convertible bonds to cheapen the cost of financing

and non-core shareholding being sold." As the cost of debt continues to rise, bankers expect

companies to turn to other equity solutions as a way to manage

their balance sheets and protect their corporate ratings. Recent

examples of such deals include French videogame developer

Ubisoft's 470 million euro convertible bond and Credit

Suisse's 4 billion Swiss franc cash call. Banks are hoping that a recent pickup in block trades and

capital raising will spill over into the new year. "Volatility has come down, so markets have the ingredients

for issuance to pick up," said Alex Watkins, co-head of ECM at

JPMorgan for EMEA. RATE HIKES DAMPEN SENTIMENT Global equities slid last week following a string of hawkish

announcements from major central banks. Some investors are

betting that interest rates will start to plateau sooner than

policymakers have indicated, as inflation shows signs of

peaking. The slowdown in IPOs has left a backlog of high-growth, yet

unprofitable, companies waiting to come to market. "ECM activity tends to be higher in periods of distress or

where growth is strong, and today we're in no man's land," said

Gareth McCartney, global co-head of ECM at UBS. A return by long-only investors to capital markets deals is

seen as key for any recovery, after a year in which hedge funds

have taken a lead role as buyers of new issuance. "It's fair to say that at times throughout 2022 the

accelerated book build (ABB) activity has seen proportionately

more participation from hedge funds," said Antonio Limones, head

of EMEA Equity syndicate at Credit Suisse. "But long-only demand

has started to increase." Some market participants are waiting to see where valuations

settle before they commit to new deals, said Gerry Keefe, head

of global banking for the Americas at HSBC. The structure of transactions will also be a key factor in

the success of future IPOs, particularly for private

equity-backed companies that carry large amounts of debt. "What you'll probably see is deals come to market that are

heavily de-risked, following in the footsteps of Mobileye

in the U.S.," said Lawrence Jamieson, head of EMEA ECM

at Barclays. The world's biggest private equity firms, which were forced

to postpone the floats of several dozen IPO-ready portfolio

companies this year, are expected to remain circumspect for the

next few quarters. "The question is whether we're going to see private equity

investors getting comfortable with selling at lower valuations,"

said BofA's Palmer. "A lot of this will come down to an

assessment of the investment's return profile, as well as

overall relevant fund dynamics." A bright spot for IPOs has been the Middle East, where

privately held and state-backed businesses are turning to

markets for capital and liquidity - such companies have raised

more cash this year through IPOs than Europe and Africa

combined. Earlier this month, Saudi oil refiner Luberef priced its

$1.3 billion share offer at the top of the initial price range

on the back of strong investor demand. Restaurant operator

Americana also pulled off a $1.8 billion dual listing

in November. However, a longer road to recovery awaits the rest of the

world. "When the stock market is going like this, people typically

don't buy new issuance," said Joshua Bonnie, co-head of Simpson

Thacher & Bartlett's global capital markets practice.

($1 = 0.9427 euro) (Reporting by Pablo Mayo Cerqueiro in London and Echo Wang in

New York; Editing by Anirban Sen, Matthew Lewis and Lisa

Shumaker)