x Abu Dhabi, UAESaturday 22 July 2017

Formula One puts brakes on IPO after Facebook's tumble

After the botched Facebook flotation, the motor racing company is latest to put a planned offering on hold. With ongoing global financial problems, what are the prospects for firms coming to market?

Jenson Button, of the Vodafone McLaren Mercedes team, in action during the Abu Dhabi Grand Prix last November at the Yas Marina Circuit. Formula One has put its US$3 billion plan to float on the Singapore stock market on hold. Pawan Singh / The National
Jenson Button, of the Vodafone McLaren Mercedes team, in action during the Abu Dhabi Grand Prix last November at the Yas Marina Circuit. Formula One has put its US$3 billion plan to float on the Singapore stock market on hold. Pawan Singh / The National

Formula One, the motor sport racing company, has put its US$3 billion (Dh11bn) initial public (IPO) offering in Singapore on hold, making it the fifth company in a week to hit the brakes on a major Asia listing.

Analysts say weak investor sentiment for IPOs in the aftermath of the botched Facebook float last month, the euro-zone crisis and China's economic slowdown have contributed to the lack of confidence in new listings.

Sources familiar with the company's decision said that Formula One dropped plans to lodge its IPO prospectus with Singapore regulators early next week, according to Reuters.

The postponement of Formula One's listing plan follows that of Graff Diamonds, the London-based luxury jeweller, which ditched its $1bn IPO in Hong Kong on Thursday.

Dan Dowding, the chief executive of IFA Killik & Co in Dubai, said about 20 IPOs have been postponed or withdrawn globally since Facebook's listing on the Nasdeq on May 17.

"While Facebook's debut has certainly contributed to the last few weeks of malaise, its share price having fallen by 22 per cent since its float, IPO performance in general has not fared all that well over the last 12 months," Mr Dowding said.

"Bloomberg's US IPO Index - a capitalisation-weighted index that measures the performance of stocks with a market value of $50 million and upwards at offering during their first publicly traded year - is down 28 per cent year to date and 5.65 per cent since the beginning of 2012.

"Concerns over slowing global growth and fear over the European sovereign debt crisis are certainly contributing.

"The more recent spike in stock- price volatility and a general weakening in stock markets has dented sentiment."

Bernie Ecclestone, the sport's boss and a part-owner of the company, said during an interview with Reuters that Formula One was biding its time, not scrapping the IPO altogether and that its bankers would continue to meet prospective investors.

"We are getting prepared so all these things are done and then whenever we want to go, we can go," the 81-year-old billionaire said.

Deal volumes in Hong Kong, Asia's IPO capital, have plummeted by 85 per cent so far in 2012, while in the United States, 12 IPOs were pulled or delayed in May.

David Kuo, the director of The Motley Fool, a London-based investing website, said that the worldwide IPO sector was down by about 50 per cent compared with last year.

"Formula One is just one of many companies that are happy to wait until market conditions stabilise before trying to raise money by selling parts of their businesses to investors," Mr Kuo said. "The main reason why companies float is to raise money. You can't do that easily in volatile markets.

"The recent Facebook flotation has also curbed the appetite for IPOs. Who would want to lose 25 per cent of their investment overnight while owners trouser $1 billion from unsuspecting investors?"

The English Premier League football club Manchester United put its plans to float in Singapore on hold last year because of market turmoil.

However, The Sunday Times reported in April that the football club was seeking to list up to 30 per cent of its shares in Singapore before August. This could value the business at as much as £2 billion.

"I am not holding my breath for Manchester United's IPO - that is, unless it is willing to sell shares at a knock-down price," Mr Kuo said.

Mr Ecclestone told Reuters that Formula One was still holding out hope that it could come to the market before the end of the year. "It's going to be this year. We said we would do it this year," he said.

Some stock analysts say the so-called IPO window could reopen later this year - but that is only if China eases monetary policy and Europe can resolve its debt crisis.

Mr Dowding is not so positive. "Sentiment is now negative and scrutiny is so intense that companies will not want to be going public and investors will not currently be prepared to consider them," he said.

"The IPO market is likely to continue to contract until global stock markets first stabilise and then start recovering on a consistent basis.

"Only when volatility declines, valuation expectations become more realistic and investor sentiment improves will we see major new issues coming back to the market.

"However, it would seem that the shop is shut in the short term.

fglover@thenational.ae

* With additional reporting by Reuters