Corporate Financing Analysis - Oil Prices Restraining IPO Renaissance - 10 JULY 2017
Equity capital markets may have stabilised but as the price of oil labours to regain the ground that it lost during the depreciation of oil prices seen across the second half of 2015 and throughout the majority of 2016 - the price of a barrel of crude fell from USD100 to as low as USD26 - the Oil & Gas sector is still struggling in the global IPO arena. While oil prices may no longer be falling, they are not exactly booming either. BMI's Commodities team recently revised our 2017 Brent forecast downward from USD57.00/bbl to USD54.00/bbl. The OPEC cuts have been slow to take effect as they have been blunted by rapid supply growth in the US, Libya and Nigeria and disappointing demand in the year to date. Nonetheless, OPEC and non-OPEC members have shown commitment to production cuts and an extension of the agreement beyond May will assist in drawing stocks over Q3 and stabilising the market. We expect oil prices to stabilise around the USD50-55/bbl level over the coming weeks, though stronger increases will require supportive fundamental data to indicate further market rebalancing.
The Near Silence Is Broken
After two quiet years for floats from the sector, the subdued oil price outlook is not what Oil & Gas firms looking to go public would have been hoping for. As such we do not expect the pent-up backlog of deals to unleash onto public markets just yet. However, thanks to the more stable backdrop for prices, we do expect the haul of IPOs from the sector to increase from the disappointing levels recorded across the past two years. Thus far this view is playing out, with data from Zephyr, a Bureau van Dijk product, showing that 10 Oil & Gas deals have been launched this year worth a combined USD2,021mn, a tally that represents the largest haul of deals since the same y-t-d period in 2014 (by which stage 17 firms going public had tapped local investors for a combined USD4,580mn) and a significant increase on the paltry tally of USD93mn raised across just two floats that had successfully braved the unfavourable economic backdrop by the same stage last year. In fact, with just over half of the year left to run, the combined value of Oil & Gas sector deals is set to overtake the 2016 full-year haul, which came out at a level of USD2,390mn across 10 floats.
|Global - Year-To-Date Period Oil & Gas Sector IPOs By Deal Value, USDmn|
|Source: Zephyr, a Bureau van Dijk product, BMI|