Equities: Spanish IPO market catches QE fire

By:
Dominic O’Neill
Published on:

IPO volumes surpass 2014 level by May; smaller deals struggle.

Spain’s equity issuance boom reached new heights in May with the IPOs of telecoms tower firm Cellnex and train manufacturer Talgo. Shares of airports operator Aena – whose €4.3 billon IPO in February is the biggest in Spain so far this year – gave further encouragement to investors, its shares having risen 12% in the first weeks of May to gain 60% on the issue price.

Henrik Gobel-160x186
  Spain remains the destination of choice for capital that wants to play a European recovery

Henrik Gobel,
Morgan Stanley

The bigger of May’s two IPOs valued Cellnex, a spin-off from Spanish infrastructure group Abertis, at €3.2 billion. It rallied more than 10% in the two weeks following the deal. 

"It’s a bullish market thanks to Draghi," says José Manuel Aisa, Cellnex’s chief financial officer, referring to the European Central Bank’s QE programme of bond purchases.

Aisa also attributes the deal’s success to the lack of other telecoms towers businesses in Europe – a factor he says helped differentiate the stock. 

"We had a clear strategy of growth and delivering profits," says Aisa. In contrast, Talgo (in a sector with less rarity value) traded down in the days and weeks following its €564 million offering. 

Signs of a healthier IPO market in Spain last year encouraged Cellnex to start preparing for an IPO in late 2014, Aisa explains. Last year equity issuance in Spain, Italy and Western Europe reached their highest levels since the eurozone crisis began. 

By late May, however, Spanish equity issuance, at around €23 billion, was already approaching last year’s level of €27 billion. The volume of Spanish IPOs had already surpassed 2014’s level, according to Dealogic. 

Stark contrast

The contrast with Italy is stark: In Italy issuance in 2015 had barely reached a quarter of its 2014 volume by late May. Italian issuance last year was also slightly lower than Spain’s volumes. 

Bankers say Spanish corporates may be frontloading issuance in anticipation of a heavy electoral calendar later in the year, culminating in the general election in the autumn. Anti-austerity party Podemos is expected to become one of the biggest parties, despite recent declines in the polls, while Catalan nationalists could bring further political uncertainty in regional elections in September.

But Spain’s bullish equity market is also in line with its stronger economic growth compared to other countries recovering from the Eurozone crisis. The IMF expects Italy’s economy to grow by just 0.5% in 2015 compared to 2.5% in Spain. Italy’s main stock index has risen 70% over the past three years, while the IBEX is up almost 90%. 

Helped by its relatively healthy economy, the Spanish equity market will continue to be busy for the rest of the year, predicts Henrik Gobel, Morgan Stanley’s co-head of global capital markets in Europe: "Spain remains the destination of choice for capital that wants to play a European recovery."

Gobel says new rights issues, as well as IPOs, will continue to bolster issuance. Santander’s €7.5 billion equity offering is by far the biggest offering so far this year. Smaller savings banks are now expected to come to the market to pacify regulators.

Bankers say companies will raise further capital for acquisitions both within Spain, in sectors like manufacturing and real estate, and abroad, in sectors like banking and telecoms. Cellnex’s IPO, in fact, came after its €693 million acquisition of 90% of Galata, the towers subsidiary of Wind Telecom in Italy. Telefonica’s €3.05 billion rights issue in April was used to help its Brazilian unit fund its acquisition of a fixed line operator in that country. Spanish cable operators are seen seeking listings too, as that sector consolidates.

Meanwhile, in banking, Sabadell’s €1.6 billion rights issue in April was to fund its acquisition of TSB in the UK, and Caixabank is bidding for BPI, Portugal’s fourth biggest lender. 

"The bigger banks in Spain are now less focused on preserving capital, and more focused on bringing return-on-equity back to double digits," says Ignacio Maldonado, equity markets banker at Bank of America Merrill Lynch. "Acquisition finance will be a big theme for the rest of the year."

The Spanish industrial network is quite polarized
between a few very big corporations and companies
that are too small to be IPO candidates

Isabel Bermejo, BBVA

Nevertheless, some warn that the market for smaller deals still faces challenges. Italy, for example, has seen a higher number of IPOs than Spain, even in 2015. 

"The Spanish industrial network is quite polarized between a few very big corporations and companies that are too small to be IPO candidates," says Isabel Bermejo, BBVA’s global head of equity capital markets. Bermejo says this contrasts to Italy, where the luxury sector produces small and mid-sized offerings.

"Smaller deals need a more tailor-made approach to seek out investors that are keen on the relevant sectors," says Ricardo Samaniego, co-head of corporate finance in Spain at Société Générale.

SocGen was one of the bookrunners on a €70 million IPO of health retailer Naturhouse in late April. Despite rising in its first two days of trading and offering exposure to a consumer recovery, Naturhouse stock has since fallen slightly below its listing price. Still, the deal "has proved that the market is open for more small and mid-cap IPOs", according to Samaniego.