There were 89 IPOs in 2022 raising a total of $1.1 billion, a significant reduction from 204 IPOs and $13.4 billion raised in 2021.
IPO activity was heavily impacted by global macroeconomic themes, rising interest rates and market volatility.
IPO were dominated by resource companies as investors focused on the global clean energy transition.
The outlook for 2023 remains uncertain, with increased IPO activity expected as we approach the second half of the year as economic conditions normalise.
Australian IPO activity in calendar year 2022 was heavily impacted by global macroeconomic themes, resulting in a significant reduction in the number and value of companies listing on the ASX. The 12 months to 31 December 2022 saw 89 companies raise a combined $1.1 billion, down from 204 IPOs and a record $13.4 billion raised in 2021.
The Russian invasion of Ukraine, continued lockdowns in China off the back of their zero-COVID policy, and rising tensions between China and Taiwan have been headline stories driving geopolitical uncertainty that have had a domino effect on the global economy. Rising energy prices and supply chain issues off the back of these events have driven inflation to levels not seen this century and caused Central Banks to implement a contractionary monetary policy response through aggressive tightening of interest rates.
This combination of geopolitical tensions, rising inflation and interest rates has resulted in considerable market volatility and uncertainty throughout 2022. The end result being a weakened IPO market, and equity capital market in general.
Despite the turbulent year, ASX IPOs outperformed the ASX 200 for the fourth consecutive year with an average return of -2.3% to 31 December 2022, compared to an annual return of -5.5% for the ASX200. The comparatively stronger IPO returns were driven by standout performances from gold exploration companies, including WA1 Resources (ASX: WA1) returning 597.5%, and Southern Cross Gold (ASX: SXG) returning 300.0% since listing.
The worst performing IPOs were dominated by the fintech sector, including Beforepay (ASX: B4P) falling 86.4% since listing, closely followed by Halo Technologies (ASX: HAL) losing 85.4% in value.
Whilst market volatility was a consistent theme in 2022, global macroeconomic trends provide good insight into the events that shaped the year, and what we can expect in 2023.
Geopolitical and economic uncertainty let to reduced IPO activity
A key contributor to the low IPO activity was the heightened level of economic and geopolitical uncertainty in 2022. Russia’s invasion of the Ukraine coupled with continued lockdowns in China catalysed high global inflation as sanctions were imposed on important Russian oil and gas exports and many manufacturing supply chains were constricted leading to increased prices and accelerating inflation. In response to 30-year high inflation in Australia, and similarly around the world, the RBA adopted an aggressive tightening cycle increasing the cash rate eight consecutive times in 2022, from an all-time low of 0.1% up to 3.1% by year end.
As inflation proved resilient to rising interest rates, a heightened volatility in the equities market reduced investor appetite for IPOs, resulting in companies re-evaluate their plans to float. The result being that larger IPOs, including household brands such as Chemist Warehouse and Cotton On that were earmarked to float in 2022 shelved their plans.
Decreased appetite for IPO investment from larger institutional investors in 2022 saw only 2 IPOs raise more than $50m in mining software provider, Chrysos Corporation (ASX: C79) and lithium explorer, Leo Lithium (ASX: LLL).
Commodity prices and the clean energy transition drove the IPOs in 2022
The IPO market was dominated by companies in the resources and the clean energy sectors in 2022, with companies focused on critical minerals, clean energy, and base metals comprising 71.9% of new listings. This reflected rising commodity prices and the increasing demand for battery minerals driven by as investors looked to increase their exposure to the global clean energy transition.
Companies contributing to the clean energy transition posted an average 3-month return of 29.9% to be the best performing sector for 2022. Zinc, copper and nickel miners Nico Resources (ASX: NC1) and Belararox (ASX: BRX) led the sector with returns of 745.0% and 305.0% 3-months post after listing, respectively.
Resource companies, aside from those directly assisting the energy transition, also showed positive 3-month returns of 2.8%, highlighting the positive impacts of rising commodity prices despite the adverse effects on the broader economy and, reduced investor sentiment.
Non-resource companies bore the brunt of market downturns
Outside of the resources and clean energy players, there was limited IPO activity with just 25 companies from other sectors listing on the ASX in 2022. As market uncertainty prevailed and investor appetite waned, many companies were reluctant to list at lower valuations or risk exposure to ongoing market uncertainty.
This uncertainty and lack of investor appetite was also evident in the listed market with the ASX 200 Technology and ASX 200 Consumer Discretionary indices respectively falling 34.3% and 22.7% for the year to 31 December. IPOs in these sectors faced similar fates returning an average of -38.4% since listing to 31 December.
Where to for 2023?
Looking ahead to 2023, it is likely that we will see the themes 2022 flow into the early part of this year. The ongoing Russian invasion of Ukraine, continued supply chain constraints, inflation concerns, and fears of a shallow global recession likely will result in subdued IPO activity in the first quarter of the year.
As we move towards the second half of 2023, we expect to see a recovery in IPO activity as inflation slows and stability returns to global economies. This will be further supported locally, as Australia has the potential to fare better than other developed economies.
The composition of IPOs is forecast to remain geared towards the clean energy transition, as ESG agendas from investors, governments and companies continue be at the forefront of capital markets.
With the expectation of normalised markets, and with investors sitting on excess cash, there are some major IPOs rumoured to be in the pipeline for 2023. These include the likes of Virgin Australia, Chemist Warehouse and 7-Eleven rumoured to be considering an ASX listing. The question remains as to whether investors will meet valuation expectations and the global economic outlook can stay on an even keel.