Global equity issuance hits first-quarter record as stake sales jump

By Freya Berry and Elzio Barreto

LONDON/HONG KONG, March 31 (Reuters) - Global equity issuance rose by a fifth to $231.5 billion in the three months through March, a record high for a first quarter, as a sharp rise in secondary share sales outweighed a drop in company flotations, Thomson Reuters data showed on Tuesday.

Fewer companies came to market, as investors were less keen to participate in steep valuations brought on by rising stock markets, and private equity funds found themselves with little left to sell after a frenzy in 2014.

Money raised from flotations, or initial public offerings (IPOs), fell a fifth to $37.2 billion, Thomson Reuters Equity Capital Markets (ECM) data showed.

"The market has progressed quite a bit and that has meant some ... valuations have moved up to levels that not everyone wants to participate in," said Josef Ritter, co-head of ECM at Deutsche Bank (LSE: 0H7D.L - news) .

With the FTSEuroFirst300 for instance up more than 16 percent this year, high stock markets have encouraged secondary share sales, where an owner such as a private equity firm sells a stake in a public company.

Such deals rose by a third year-on-year to raise $168.4 billion, or 73 percent of activity, although many offerings had mixed results, as overconfident pricing by some banks left them sitting on sizeable stakes.

However, follow-ons are valuable league table currency. Goldman Sachs (NYSE: GS-PB - news) and UBS (NYSEArca: FBGX - news) were boosted by their 7.5 billion euro ($8.1 billion) capital increase in Spanish lender Santander, the quarter's biggest ECM deal by far.

Goldman topped worldwide ECM rankings, followed by JP Morgan and UBS. UBS led league tables in Europe, up from third at the same time last year.

The Santander deal helped catapult all four Spanish exchanges to top position by amount raised in the quarter. Shanghai led by number of issues.

The United States, which led exchange rankings last quarter, suffered from wobbles in equity and commodity markets which reduced the number of stock market debuts. Alibaba, which last September became the world's biggest-ever IPO, has lost around 30 percent since hitting a high of $120 in November.

DROP IN ACTIVITY

But although bankers were busier they earned less. Global ECM fees fell by 3 percent year-on-year to $5 billion. And with countries such as Britain set for a drop in activity in the run-up to national elections, ECM bankers are looking to colleagues in mergers and acquisitions (M&A) to take up the reins.

"The thing that is going to drive it all is whether the much talked about but long absent M&A situations actually come through. That's where many of us in ECM have been placing our hopes," said Adrian Lewis, head of EMEA ECM at HSBC.

In Asia Pacific, a rally in mainland China's stock market and gains in Hong Kong are stoking investors' demand for upcoming deals in the region's two biggest markets, bankers say.

"The recovery we're seeing in appetite there in markets is a very good thing in terms of the overall regional outlook," said Jason Cox, co-head of Asia Pacific Global Capital Markets at Bank of America Merrill Lynch.

Financial services companies in Hong Kong and China plan more than $30 billion worth of offerings in coming months, buoyed by a jump in company earnings and stock trading activity in mainland China.

GF Securities Co Ltd, China's fourth-largest brokerage by total assets, prices an up to $3.6 billion Hong Kong offering this week, while other large offerings include the flotation of up to $3 billion by China Huarong Asset Management.

India's $3.6 billion stake sale in state-run Coal India Ltd (BSE: COALINDIA.BO - news) in January underscored optimism over privatisations in the country, as Prime Minister Narendra Modi looks to close a budget gap.

But the biggest looming deals are in Japan, where Japan Post Holdings Co Ltd and its banking and insurance units are planning to list separately on the Tokyo Stock Exchange. The government has said it plans to raise around $8 billion in the first round of sales. ($1 = 0.9224 Euros) (Editing by David Holmes)