Floats and capital raisings drought hits ASX

There has been a drought in new companies floating on the ASX and an 80 per cent collapse in the amount of fresh capital raised over the last 12 months.

The global rout in equity markets, combined with more attractive returns available in fixed-term deposits or other safer investment options, has led to a drought in new companies floating on the Australian Securities Exchange and an 80 per cent collapse in the amount of fresh capital raised over the last 12 months.

The funds raised for IPOs almost completely disappeared, dropping 96 per cent in 2023.

And investors are trading less on the market too, with equity trading down by 18 per cent in terms of volume and 16 per cent by value over fiscal 2023 as people look elsewhere for superior returns on their investments.

The latest ASX activity report has shed further light on IPOs, capital raisings and trading for the month of June as well as the 12 months to June, with global economic forces, weaker investor sentiment and other investment factors playing into a lull in activity.

However, not all investors and fund managers are lamenting the drying up of the IPO market and the lack of new and large capital raising opportunities, either from new ASX entrants or existing public companies seeking secondary raisings, with a recent retreat in share prices offering much better investment options.

According to the ASX activity report for June and the financial year to June, new listings for fiscal 2023 numbered just 57, down from 217 floats in fiscal 2022.

This saw the number of stocks listed on the ASX shrink, when also taking into account delistings, with the ASX ending June with 2255 listed entities, down from 2317 at the end of June 2022.

In terms of capital raisings there was also a sharp drop in fresh capital handed over to companies, both through IPOs as well as existing publicly listed companies seeing further capital injections.

The ASX report shows that the total capital raised in 2023 fell 80 per cent to $51.72bn from the much healthier $255.33bn raised in 2022. When just looking at monies sent to new sharemarket floats, the amount of capital raised showed an even sharper decline, with only $2.51bn raised, which was down 96 per cent against the previous year.

In the month of June 2023, the average daily number of trades was down 26 per cent on the previous corresponding period, while the average daily value traded on market of $5.7bn was down 19 per cent.

On a 12-month perspective, over fiscal 2023, trade volumes were down 18 per cent and the value of trades for the year was down 16 per cent.

The downturn comes with equities weak over much of fiscal 2023 as interest rates globally were hiked by central banks and investors sought safer haven in more secure asset classes such as bank deposits.

Armytage Private portfolio manager Bradley King said the spike in sharemarket floats in 2022 was as much about the rebound from Covid-19 as good investment opportunities with many IPOs lacking in quality.

He said many fund managers were chasing returns by just investing in IPOs, and instead should be looking for opportunities in existing ASX companies with the recent pull back in share prices presenting some new investment ideas.

“Capital raisings are on pause at moment because everyone knows that equity markets are weak. The latest float of Redox, that was a pretty weak float and that was supposed to be the A-grade listing of the year, and it wasn’t,” Mr King said.

“The sharemarket has been shrinking from takeovers and corporate activity, which is partly a function of the weaker Australian dollar. And we have seen share prices come back, multiples come back.

“And there doesn’t need to be new companies coming through the pipeline, floats, as there are some great companies out there whose share price has been hammered. This is a market that doesn’t need new ideas but fund managers need to go out there and look at companies that listed in the last few years and have reasonable businesses.

“We think there are some really good opportunities in small-cap companies.”