June 29 (Bloomberg) -- Initial public offerings fell 34 percent this quarter as Facebook Inc.'s disappointing debut and worsening economic conditions rattled investors, pressuring companies to lure buyers with cheaper valuations.
IPOs globally raised $41.3 billion, the worst second quarter since 2009, data compiled by Bloomberg show. That compared with $62.7 billion a year ago. At least 50 companies shelved sales as Europe's debt crisis spread, growth prospects slowed in China and Facebook's stock sank 17 percent from its May 17 IPO price.
"With the economy and with Europe, there are more questions than answers in investors' minds, and they want some clarity before they put their money down," said Matt McCormick, who helps oversee $6.2 billion at Cincinnati-based Bahl & Gaynor Inc. "After what happened with Facebook, people want IPOs to go off without a hitch."
Facebook flopped after pricing its IPO at more than 100 times earnings and kicked off a monthlong drought in the U.S. Global IPOs that followed, including Felda Global Ventures Holdings Bhd, a Malaysian palm-oil plantation operator, and EQT Midstream Partners LP, offered discounts to investors.
Companies including Evonik Industries AG, LaShou Group Inc. and Tria Beauty Inc. scrapped their IPOs rather than brave a resurgence in stock-market volatility. The swings damped investors' risk appetite, making it harder for companies to get the prices they want.
S&P's Swings
The Standard & Poor's 500 Index, the benchmark gauge for American equities, rose or fell an average of 1 percent a day in June, about twice the rate of the previous five months, according to data compiled by Bloomberg. Price swings are approaching levels from last year, when the S&P 500's daily move of 1.3 percent between April and December was twice the five- decade average.
"What you'll get now is high-quality companies with valuations that are reasonable given the lack of appetite and the volatility in the market," Joe Castle, New York-based head of equities syndicate at Barclays Plc, said at a briefing this month. "The market usually rebuilds from there."
Felda jumped more than 16 percent in its first day of trading after pricing its shares below the top of the proposed range. EQT Midstream, an operator of natural-gas pipelines in the northeastern U.S.'s Marcellus Shale region, has risen 15 percent after offering a higher dividend yield than peers in its IPO.
U.S. IPOs
U.S. IPOs rose 67 percent this quarter to $22.7 billion, buoyed mainly by Facebook's $16 billion sale and Carlyle Group LP's May 2 IPO. ServiceNow Inc., the maker of cloud-based business software, raised $210 million in its IPO yesterday, pricing the shares above the proposed range.
Carlyle has advanced less than 1 percent since its debut. PetroLogistics LP, operator of the world's biggest propylene plant, has dropped 40 percent since its May 3 offering.
The MSCI World Index, the benchmark gauge of equities in 24 developed markets, sank 8.5 percent this quarter, dragged down partly by Europe's sovereign-debt woes. Cyprus became the fifth euro-region country to seek a bailout this week, increasing concern the crisis will spread and imperil the area's stability. Western Europe IPOs raised only $896 million, 95 percent less than in the year-earlier period.
"For European IPOs, the overriding concern remains the region's macro situation," said Darrell Uden, UBS AG's London- based co-head of equity capital markets for Europe, the Middle East and Africa. "For these deals to go ahead, volatility also needs to come down to an acceptable level, which we haven't yet seen."
Scaled-Back Deals
Some companies scaled back deals to match shrinking demand. Inner Mongolia Yitai Coal Co., the biggest coal producer in the Chinese region bordering Mongolia, is seeking as much as $1.1 billion in a Hong Kong additional stock offering after first planning to raise as much as $1.5 billion, a term sheet showed this week. Xiao Nan Guo Restaurants Holdings Ltd., the Chinese restaurant chain that shelved its IPO in Hong Kong last year, revived the sale with a lower price range and seeks about HK$512 million ($66 million).
Given the lack of demand, Joe Reece, global head of equity capital markets at Credit Suisse Group AG, said he's advising most IPO clients to expect good conditions for a sale early next year.
"Overall appetite for risk is compressing right now," Reece said. "A lot of things have to go right for this year to finish strong."
Morgan Stanley's Dominance
Morgan Stanley is on track to lead global IPO underwriting by market share for the third year in a row, partly thanks to the Facebook offering, according to data compiled by Bloomberg. The New York-based bank nabbed the top spot in 2011 after working on that year's biggest IPO, the $10 billion London and Hong Kong offering by Glencore International Plc. In 2010, Morgan Stanley helped complete the $22.1 billion IPO by Agricultural Bank of China Ltd. in Shanghai and Hong Kong, history's biggest initial share sale.
Asia, which accounted for almost half of global IPO funds raised in 2011, had its slowest second quarter for IPOs since 2009, generating $12.9 billion for companies, as a projected slowdown in China's economic growth has weighed on stock markets in the region. The most populous nation, whose economy expanded 10.4 percent in 2010, is forecast by economists to grow 8.2 percent this year.
Manchester United Ltd., the English soccer club, scrapped plans to list in Singapore and is exploring a sale in the U.S., people familiar with the plans said this month, while auto- racing series Formula One also shelved a listing plan in Singapore until later this year because of volatility, Chief Executive Officer Bernie Ecclestone said last month.
Felda's Sale
One exception was Felda, which raised $3.3 billion in its Malaysian IPO, the largest initial sale since Facebook's. That indicates Southeast Asia's capital markets may pick up the slack for a slowing China, said Ronald Wan, a Hong Kong-based managing director at China Merchants Securities, which oversees about $1.5 billion.
"The shift of investors' attention to Southeast Asia may continue at least through the end of the year," Wan said. "Southeast Asia offers a good alternative to global investors."
As long as Europe's debt crisis goes unresolved and the U.S. economic recovery remains uncertain, stocks will struggle and IPOs will encounter slack demand, said Jack Ablin, chief investment officer of BMO Harris Private Bank in Chicago.
"Recent experience hasn't been great for individual investors," said Ablin, who helps oversee about $60 billion of assets. "There appears to be a distrust of equity markets in general, and the problem is that IPOs as a segment require an additional level of optimism and faith, both of which are lacking right now."
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