After two lousy years in succession, 2003 at last gave hope that the storm clouds may be passing for Europe’s corporate capital markets. But the year certainly did not start out well, dominated as it was by the war in Iraq.
The trajectory of the FTSE Eurotop 300 index — tracking the shares of Europe’s largest 300 companies — tells the story. The index’s long, sharp decline from the 1,700 bubble-market peak in late 2000 continued into the first quarter of 2003, with a slump in March to 675 as the war in Iraq was officially declared.
In the first quarter, Europe-wide figures for equity capital markets were bleak, even compared with the depressed standards of 2002. Indeed, the first quarter of 2003 was the worst for new equity issuance since 1995, with a total of just €6.5 billion, according to Dealogic, a corporate finance analytics firm.
It was in the throes of this bear market, and on the first day of the war, that Allianz, the German financial services giant, bit the bullet and launched a €4 billion equity rights issue, the largest ever fully-underwritten rights issue. It was quickly overshadowed by France Télécom and its record €15 billion rights issue (which had the added advantage of being 56.5 percent underwritten by the French government, the subject of a European Commission probe for unfair state subsidy).
At the time, no one could have known that March would mark the beginning of a recovery. But after the swift fall of Baghdad, the FTSE Eurotop 300 began a steady rise towards 930, where it stood in late November. Those taking up Allianz’s rights at the deeply discounted price of €38 — and take-up was 99.7 percent — have been rewarded with a stock price rise to €95.
The deal set a tone of decisiveness for new CEO Michael Diekmann. Though much comment was negative at the time it was launched, the success of the issue when subscription closed six weeks later was one of the factors that shook the market out of its malaise and gave heart to other companies.
Encouraged by the success of the jumbo rights issues in the spring, and riding the stockmarkets’ so-called Baghdad bounce, new offerings picked up. Even so, by early November total new equity volume was still just €70 billion, compared with €81 billion for the same period last year, says Dealogic.
And while rights issues were up by 48 percent, at €26 billion, by November, IPOs remained slack — they were down by 47 percent, with 65 deals totalling €4.7 billion. Germany, for example, had to wait until October to have its first IPO of the year — the spin-off by HBV of Hypo Real Estate. But it was worth the wait — the IPO was well received, and the stock gained close to 20 percent in the first week after its debut. In the UK, pickings were also slim — the highlight was July’s €1.64 billion listing of telephone directory group Yell, marking the largest IPO on the London exchange for two years. Yet quite a few exchanges, including Copenhagen, Oslo and Athens, didn’t have any IPOs, at least none that managed to grab headlines.