Equity capital markets have re-opened but only for those able defy the persistent underlying volatility. Significant transactions, such as the EUR 454m sell-down of Deutsche Lufthansa [ETR:LHA] stock by the German government, prove that there is a market for issuers willing to take a risk.

Roughly USD 3.35bn equivalent of equity paper has been printed in the first two weeks of September and more is expected including the pricing of two live IPOs – the blockbuster listing of Porsche and the flotation of Dubai’s road toll-network Salik.

Lufthansa’s block trade marked the end of the state investment in the airline to support it through the COVID-19 pandemic. The trade was notable not just for its historical significance, but for the fact it took place on a dire day for US markets, with the S&P 500 plummeting 4.3% and the NASDAQ 100 over 5% after the country’s latest inflation data came in slightly higher than expected.

European markets also ended the day down despite being up around 1% across the board before the release of US data.

“It was the most nervous I’ve been about a launch for a long time,” said a source close to the deal. “But we had enough conviction in the deal and the feedback we had to go ahead.”

Not all stocks benefit from having the name recognition and liquidity profile of Lufthansa and those won’t be able to withstand the sort of severe volatility present on Tuesday night.

 “We are clearly in a trading market; we had three days of strength and then an unexpected number came in and shocked everyone,” an ECM banker said noting this month’s deal flow was a progression from earlier in the year when equity capital markets were paralysed by volatility.

Alongside secondary block trades, companies have also been able to undertake equity financing activity.

Last week, Siemens Energy [ENR] attracted strong interest for a EUR 960m mandatory convertible bond to part finance its plans to de-list Gamesa [BME:SGRE], its separately listed wind turbine division.

The company was also able to find enough demand for a concurrent EUR 518.32m delta placement which allowed funds that bought the bond to hedge their position.

Alongside Siemens Energy, French renewable energy producer Neoen [EPA:NEOEN] issued a EUR 300m convertible to refinance an old issue and to partially finance investment.

Sources said the deals both showed that not only are investors receptive to primary equity raises, but the re-opening of the convertible bond market also gives issuers additional financing options to strengthen their balance sheets.

Three equity bankers speaking to ECM Pulse said that there is a long list of primary deals which could soon follow.

“Companies may find that their cost of equity is a lot lower than their cost of debt at the moment and in these markets, investors far prefer companies with a healthier balance sheet,” said one.

Another banker added that several of his clients have done a huge amount of work on potential primary raises over the summer and were now deciding when to execute on those plans.

Although markets are still difficult, there remains plenty of demand for share sales that meet the right investment thematic, an investor argued.

Porsche IPO in different league

This news service reported last week that Porsche and Salik could be joined in the IPO market by Nucera, the hydrogen operation of German industrial conglomerate Thyssenkrupp [ETR:TKA], although the company has pulled away from launching a deal in volatile markets already this year and could do so again. 

Porsche and Salik are not expected to herald a wave of new European listings, though.

Bankers speaking to this news service have said the fortunes of Middle Eastern deals are separate from the rest of the market in EMEA, and dealmakers are now also careful to warn that clients should not take the launch of the Porsche IPO as an open invitation to go ahead in a clearly troubled market.

“Porsche is unique,” said a fourth banker, adding that there was not much read across for the rest of the market.

The IPO market remains tortuously hard, with most prospective issuers having to review valuation expectations from the boom times of 2021, when deal pitching initially took place.

Bridging that gap remains the challenge for bankers and issuers that have tried to come to market, notably Italian water technology and hydrogen company Industrie De Nora [BIT:DNR] which had to accept a final IPO valuation of EUR 2.72bn well below its initial EUR 4.2bn hopes.

Issuers are being advised to cut their hopes and try to price a deal this year, rather than wait for better days which will inevitably be crowded.

Markets are volatile but are open. Will issuers take their chance?