Half of all 2021 IPOs underwater after record year for listings

Fri 31 Dec 21, 10:48am (AEST)
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Key Points

  • 194 companies listed on the ASX this year, more than double the five-year average
  • Threats of higher interest rates are driving down prices of high-growth IPOs
  • More than half of 2021 IPOs now sit below their offer prices

2021 has been a massive year for initial public offerings as startup founders and early investors tried to cash in on sky-high valuations. 

194 companies went public in 2021 (including reverse takeovers), marking the highest number of listings since 2007. By comparison, the average number of IPOs in the last five years comes in at just 88. 

To date, the average IPO has increased 13.1% above its initial offer price, according to data from 61financial. 

At face value, the figure outperforms the ASX 200's year-to-date gain of 12.3%.

There is however, a darker truth to the record breaking year for IPOs.

115 out of the 194 IPOs are now trading below their initial offer prices. This means that the remaining positive 79 are doing the heavy lifting.

The top performing IPOs are dominated by lithium and battery related names like Kuniko (ASX: KNI), Lithium Energy (ASX: LEL) and Global Lithium (ASX: GL1), all of which have risen more than 300%.

For investors that participated in some of the larger new listings like Pepper Money (ASX: PPM) and Latitude Financial Services Group (ASX: LFS), you'd find yourself down more than 20%.

There are two main culprits for the weakness across new listings. 

In response to soaring inflation, central banks signaled that they would raise interest rates next year, triggering a broad sell-off in technology stocks.

A vast majority of IPOs are speculative and loss making in nature. They hope to one day deliver big profits, but could also flop.

A higher interest rate environment shifts the opportunity cost for investors betting on fast growing companies that may only begin to turn a profit well into the distant future. When interest rates are near zero, it's logical to pay a premium for those potential future profits. This proposition becomes far less compelling as interest rates rise.

The unprecedented supply of IPOs flooding the market was also met with ample stimulus from central banks. 

In Australia, the Reserve Bank completed a $200bn bond purchase program between November 2020 and March 2021. Following the completion of the program, it initiated another $4bn per week program until at least May 2022. 

As central banks, globally, begin to raise interest rates and reel in covid-driven stimulus, the market is now left to fend for itself.

A weak finish 

December IPOs have been particularly weak, with the average fresh listing down 5.1% from its offer price.

Most of the December IPOs were 20 cent listings for mineral exploration companies.

The only exception was the $735m IPO of real estate investment manager, Qualitas (ASX: QAL). The company's stock is currently trading just below its $2.50 offer price.

Written By

Kerry Sun

Finance Writer & Social Media

Kerry holds a Bachelor of Commerce from Monash University and was Vice President of the University Network for Investing and Trading (UNIT). He is an avid swing trader, and drawn to breakouts and technical set ups. Outside of writing and trading, Kerry is a huge UFC fan, loves poker and bouldering.

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