Banks, emerging markets to drive fundraising market

LONDON (Reuters) - European banks and insurers could account for up to $50 billion of fundraising deals this year as they strive to meet tough new regulations, and assets are spun off by institutions and governments recovering from the financial crisis.

Companies in emerging markets, particularly in the resources sector, will also be prominent in equity capital markets (ECM), and with a calmer market seen this year, a fat pipeline of deals is waiting to test market appetite.

“The near-term visible calendar of potential financial institution supply, taking a 12-month view, is in our view up to $50 billion,” said Nick Williams, head of Europe, Middle East and Africa (EMEA) ECM at Credit Suisse.

“The market is still relatively robust in terms of the buy side being able and willing to provide capital for banks and the next 6 to 12 months are going to be very active.”

Bank offerings are expected to include Spanish lender Santander’s listing of its British arm in the first half of the year — a deal which could raise around 3 billion pounds.

Asset sales agreed as part of state aid packages during the financial crisis may include Dutch group ING’s planned initial public offerings (IPO) of its insurance activities and Belgian banking and insurance group KBC’s flotation of a minority stake in its Czech unit, CSOB.

Alongside sales and flotations, a number of banks are expected to follow the likes of Deutsche Bank and Standard Chartered, which tapped investors through cash calls in 2010 to help meet tougher capital and liquidity rules.

“With rights issues, banks spinning off assets, banks raising money to pay back governments or even governments selling shares, I would expect financials to account for 25-40 percent of equity issuance (this year),” said Oliver Holbourn, head of EMEA ECM syndicate at Bank of America Merrill Lynch.

Busy Russia

Fast growing economies, which provided some of Europe’s biggest deals last year, will be the focus of attention this year as investors seek higher yields.

Following Poland’s 25 billion zloty ($8.4 billion) privatisation programme, Russia hopes to raise $10 billion a year from a five-year privatisation plan in a bid to reduce the budget deficit and improve efficiency and corporate governance at key companies.

Having listed Russian Railways unit Transcontainer in November, it plans to sell stakes in bank VTB, oil giant Rosneft and shipping group Sovcomflot, among other major companies.

“Emerging market growth right now is a massive driver,” said Sam Dean, co-head of ECM at Barclays Capital. “We’ve seen a lot of deals out of Poland and Russia starting to come on stream, so all of those markets look set to stay busy.”

As well as a major source of issuance, fast growing economies could increasingly become a destination for European issuers.

Listings hotbed Hong Kong, which attracted Russian aluminium producer UC RUSAL and French cosmetics maker L’Occitaine in 2010, will likely be sought by companies with exposure to Asian markets keen to take advantage of strong fund flows into the region and abundant liquidity.

Luxury goods retailers, such as Italy’s Prada, are mooted as suitable candidates, as are firms with links to natural resources, such as commodities giant Glencore. “Hong Kong and other Asian capital market centres could play an even bigger role next year in attracting western companies, which have a significant Asian exposure, to list,” said Emmanuel Gueroult, co-head of EMEA ECM at Morgan Stanley.

Even though euro zone sovereign debt worries remain, bankers do not foresee the extreme market volatility which knocked billions of dollars worth of IPOs off track in 2010.

“Coming out of this huge crisis there are going to be aftershocks and periods of market volatility, but those should get less powerful and the time periods ought to broaden out,” said Barclays Capital’s Dean.

“Slowly we should be getting back to a better market and I think 2011 will be an easier market to issue in to than 2010.”