On January 10, Tencent Securities reported that the long-term closure of the US government may reverse the situation that this year was expected to be the big year of US stock IPO.
Bankers and lawyers said that the partial closure of the Securities and Exchange Commission (SEC) was forcing companies seeking to list in January to postpone listing plans. These companies include biotechnology companies Gossamer Bio, Alector and Alight Solutions, a unit of Blackstone Group LP.
At present, there may not be any big companies listed in the United States this month. According to Dealogic data, only three years have passed since 1995 when the number of new shares issued in January was insufficient. Data shows that this was the result of market turbulence in 2003, 2009 and 2016, which was one of the weakest years for initial public offerings (IPOs) since records began.
According to the closing time of the U.S. Securities and Exchange Commission (SEC) and other notices on its website, as part of this government shutdown, the SEC has granted thousands of employees leave and stopped reviewing and approving all new and pending company registration statements, including proposed IPO applications. Dozens of SEC accountants and lawyers responsible for reviewing IPO documents were prohibited from reading emails or calling transaction lawyers seeking to discuss complex disclosure issues.
In contrast, past closures have had little impact on the SEC; In 1995, 1996 and 2013, the SEC was able to use the remaining cash to continue operations when other government offices were closed. But the U.S. Securities and Exchange Commission does not have enough funds to survive the entire government shutdown this year.
As more and more private enterprises begin to plan to go public, the suspension of the work of the Securities and Exchange Commission (SEC) is threatening the recovery of IPO business in the past two years. With Uber, Lyft, Pinterest and other large unicorns planning to enter the public market, bankers and lawyers said that the IPO financing scale in 2019 could have set a record.
The drastic fluctuation of the stock market in the last few weeks of 2018 has shaken these companies seeking to list. The S&P 500 index closed down more than 6% this year, its worst annual performance since 2008. According to Dealogic data, companies listed in 2018 suffered losses on average throughout the year. But the sharp rise of these stocks earlier this year was a good thing for the IPO market.
Some companies, including Beyond Meat, a vegetarian burger producer, which planned to go public at the end of last year, delayed their listing until the beginning of 2019 due to the poor market environment. Now they are unable to cope with the closure of the government. The same is true of Gossamer Bio and Alector. Gossamer Bio applied for IPO at the end of December last year, and Alector applied for IPO on Monday. Blackstone originally planned to IPO Alight Solutions in January, but this plan has been put on hold.
The situation may be even worse for biotechnology companies, many of which are more eager to use funds raised in the open market for drug development. Alan Denenberg, head of the Northern California office of Davis Polk&Wardwell LLP, said that many biotechnology companies and small healthcare companies have been looking for alternatives to IPO in case the government shuts down for more than a month.
"They don't have time to wait, unlike some unicorns in technology," Denenberg said.
In fact, companies such as Uber and Lyft do not face such pressure. It was expected that the two companies would conduct IPO within this year. As long as the government does not stay closed for too long, they should be able to continue to implement their plans.
Both online car hailing companies have submitted confidential documents to the Securities and Exchange Commission (SEC), requiring listing in March or April at the earliest. Nevertheless, the government shutdown interrupted the ability of the two companies to obtain information disclosure feedback from the SEC, which is a necessary step to complete the registration statement.
Lori Begley, managing director of BMO Capital Markets, said that the company even suggested that those companies that have gone through most of the regulatory review procedures postpone listing because they cannot obtain final approval now. "Because of the partial closure of the SEC, you can't effectively price new shares," she said.
The Chinese company Meimei Securities raised $7 million in its IPO on Nasdaq this week, but it was able to raise funds because it completed its registration with the Securities and Exchange Commission (SEC) before the US government closed. Another possibility is that one or more shell companies called special purpose acquisition companies may start trading, because trading procedures are not practical for typical listed companies.
Some lawyers said that they were instructing clients to file applications with the Securities and Exchange Commission (SEC) in a confidential manner, which was still feasible during the closure of the US government, so once the government reopened, they would be in the lead. However, it is unclear how the SEC will prioritize the work of employees once they return.
"There is a lot of uncertainty about what will happen after the government restarts," Denenberg said.
An SEC spokesman declined to comment.
The unexpected IPO window also put Wall Street in trouble. In recent weeks, due to the turmoil in the financial market, the capital market groups of banks have suffered from insufficient bond issuance.
According to Dealogic data, companies whose bond ratings are lower than investment grade have not issued any bonds since November last year, and December was the first month since November 2008 (the worst time of the financial crisis) when no junk bonds were issued. The situation in the investment grade bond market is not much better. As of Tuesday morning, 2019 was the slowest year for US bond issuance since 2008. (midsummer)