A heavy price: Markets open for sell-downs but deep discounts give issuers pause

Data InsightECM Pulse 23 November

A heavy price: Markets open for sell-downs but deep discounts give issuers pause

Equity capital markets in EMEA are open again with sellers finally able to dispose of large positions through blocks, but the buyside is putting a price on volatility as discounts widen materially.

Block trade pricing in November has widened significantly as investors draw closer to the end of the year, eager to guard against further losses or protect whatever performance they may have from a disappointing 2022.

Weighted average discounts for blocks priced in November to date stood at around 8.5%, compared with 4.99% in October and 5.2% in September.

That said, there is still clearly an issuance window in Europe, as predicted by last week’s ECM Pulseafter economic data in the US showed inflation slowing slightly.

In the 12 full days since the CFPB data release on November 10, there has been over USD 3.8bn of block issuance in EMEA, according to Dealogic data, around 163% higher than issuance in the first 10 days of the month. There was USD 2.2bn worth of EMEA block issuance in October and USD 3.3bn in September, according to Dealogic.

Some sellers used last week’s opening to place big slices of equity, albeit at a higher discount than planned, including Intesa Sanpaolo [BIT:ISP] which surprised the market with a EUR 584m clean-up trade in payments firm Nexi [BIT:NEXI] and a EUR 856.4m sale of Cellnex [BIM:CLNX] sold by JP Morgan and HSBC to cover their exposure in a derivatives transaction.

This week, shareholders in Amsterdam-listed financial services platform Allfunds [AMS:ALLFG] sold a EUR 288m stake in another deal the market did not anticipate. All these transactions priced with discounts in the high single digits, with Nexi trading at over 10%.

“Any transaction that comes as a surprise to the market is coming at a far wider price point, because long-only investors aren’t ready and the hedge funds have to scramble to get involved,” said an ECM banker.

Sources told this news service that there were other investor difficulties with the Allfunds deal, including market indigestion with the sale coming so soon after a block in October by Credit Suisse as part of its wider asset disposal programme.

Investors are open to put money to work but are highly cautious given wild market swings in recent weeks, a second banker said.

“Post CPI we have seen all the momentum stocks of this year, like energy, underperforming,” he said, adding that investors have struggled for performance all year. “People are sitting on cash, that they want to deploy, but also need greater visibility.”

Issuer conundrum

ECM bankers speaking to ECM Pulse say that the pricing dynamic in blocks is causing a conundrum for issuers, who need to decide whether to take advantage of a clear window at a price they find difficult to stomach.

An ECM investor said that there has been an uptick in wall-crossing since the CFPB numbers and, while some deals have hit screens, several issuers have not launched transactions after being dissuaded by buyside discount demands. But he added those demands would be unlikely to drop, with few investors willing to make a mistake so close to the end of the year.

A third ECM banker said several clients were now tempted to wait until 1Q23 to sell assets in the hope that investors might be more generous at the start of a fresh year with capital to deploy.

“The debate we are having with issuers is whether to go in Q1 or go now, as there is a window now,” the first banker said. “Our advice is if you can stomach the price, take the window and move on.”

Since the CFPB data, issuers selling trades have also reset price expectations away from where they may have hoped to sell stakes previously.

The sellers in the Allfunds deal this week, Hellman & Friedman, Singaporean sovereign wealth fund GIC and BNP Paribas [EPA:BNP], sold 37% below where they sold the stock at IPO in April 2021.

“A lot of vendors are adjusting their target prices and once you have done that, you’re more willing to look at windows at price levels not even consider six months ago, particularly for vendors with big positions where they know it will take six to 12 months to fully exit,” said the first banker.

The door is wide open for big blocks before year-end, but how many sellers will step through it?

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