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High hopes for high-yield IPOs

Stable but low-growth companies that would once have had difficulty exciting the interest of investors could get higher valuations through new high-yield IPO structures. The pipeline of deals shows that vendors and issuers are keen to exploit the opportunity.


AT 246 DEALS expected to raise $53.4 billion, the ECM backlog of registered deals is at its highest level on record, according to Dealogic, with IPOs constituting the majority of volume. But while global IPO volume in the first half of the year has soared 372% over that for the same period in 2003, it has been anything but plain sailing. In Europe, especially, investors, vendors, and bookrunners have struggled to agree on valuations and few new issues have performed impressively in the aftermarket.

Concerns that earnings and overall growth momentum are close to peaking in the US, and the crab-like movements of major stock indices, have encouraged listed companies to increase their dividend payments and share buy-back programmes in order to retain investor interest and do something with accumulating cash piles. For companies seeking an IPO, the lack of direction in the secondary market has made it particularly difficult for those without a compelling growth story to enthuse potential buyers and get a decent price for their shares.

Signing the high-yield pledge Enter the high-yield IPO. This type of equity new issue, which varies in structure from jurisdiction to jurisdiction, could provide a way towards high valuations for stable, predictable and cash-generative companies.

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