Europe is biggest drag in slump in 2018 equity raising

By Dasha Afanasieva

LONDON (Reuters) - European equity raising slowed sharply in 2018, making it the biggest drag on falling global activity, Refinitiv data showed on Friday, as political uncertainty and growth concerns made it harder to persuade investors to buy stock.

Global equity capital markets' (ECM) proceeds fell to $688 billion in 2018 from $781 billion in the same period of 2017 according to data as of Dec. 17.

"Political uncertainty across Europe has not helped, but the real surprise was the slowdown in European macroeconomic growth," said Craig Coben, vice-chairman of global capital markets at Bank of America Merrill Lynch.

"Against such a backdrop, banks have to carefully curate the offerings they are underwriting, ensuring that the equities stories are properly presented, appropriately sized and meticulously communicated," he added.

European ECM proceeds were at their lowest since 2012, falling 38 percent to $142 billion. Initial public offering (IPO) proceeds in the region fell 5 percent to $41 billion.

The euro zone economy grew at its slowest pace in four years in the third quarter of 2018, while employment growth also eased during the period, amid worries that tighter monetary conditions in the United States could further weigh on the global outlook.

Britain's complicated exit from the European Union has fuelled uncertainty, threatening the fifth-largest economy and potentially eroding London's position as a global financial centre.

"At the start of 2018, investors thought there would be a coordinated last tick of global economic upturn," a senior ECM advisor who did not want to be named said.

"That hope disappeared by spring, and it became clear that's not how the year was evolving - mainly because of the interest rate cycle."

Global equity markets slumped on Thursday after the U.S. Federal Reserve stuck with guidance for additional hikes over the next two years even as signs grow that global economic growth was stuttering.

Several European IPOs failed or performed poorly. For example, Spanish oil firm Cepsa pulled its IPO, while Aston Martin traded down sharply in the first few days of its London debut.

"LATE-CYCLE CONDITIONS"

A trade dispute between the United States and China and an emerging market sell-off earlier in the year further unnerved investors.

Turkey has been battered by a lira sell-off that has driven up the costs of food and fuel and forced the central bank to hike its main rate to 24 percent.

U.S. sanctions on Russian entities in response to Moscow's alleged meddling in the 2016 U.S. presidential election contributed to the country's failure to pull off a single 2018 IPO.

"The vast majority of emerging market deals which did not go ahead in 2019 are delayed rather than cancelled: there were very country-specific issues, including in Russia and Turkey, which we expect to settle down," said Adam Farlow head of capital markets in Europe, Middle East and Africa at law firm Baker McKenzie.

The year's top three ECM deals hailed from Asia and the biggest one, the IPO of Softbank Corp , was trading below its list price on Thursday.

Goldman Sachs was the top bookrunner for ECM and while Morgan Stanley was the leading bank for IPOs globally.

The IPO of Volkswagen's truck and bus unit was expected to be among the biggest of 2019, driving proceeds of more than 6 billion euros to its parent company Volkswagen AG .

The long awaited listing of ride-hailing company Lyft Inc, which beat bigger rival Uber Technologies Inc in its filing to the Securities and Exchange Commission, follows a string of high-profile IPOs of technology companies valued at more than $1 billion, such as Dropbox Inc and Spotify Technology SA .

The ECM adviser said technology companies with high growth rates could still IPO successfully:

"Going into 2019, the case for investing in equities is not destroyed but the environment calls for sectors and companies suited to late-cycle conditions for example disruptor stocks."

(Reporting by Dasha Afanasieva; Editing by Hugh Lawson)