London IPO market seen gloomy with investors wary

LONDON Oct 23 (Reuters) - The IPO market in London is set to proceed on its gloomy track for the rest of the year after a plunge in volumes in the third quarter as a global credit crunch continues to hit hard, Ernst & Young said on Tuesday.

London Stock Exchange (LSE.L) was trumpeted late last year as the new global epicentre for listings, but it lost market share amid tougher competition from rivals like NYSE Euronext and the Hong Kong Exchange and as emerging market firms increasingly opted for a domestic listing.

The LSE is unlikely to see initial public offerings recover until the first half of 2008, the consulting firm said in its global IPO report, after the UK exchange's global market share by capital raised fell to 7 percent from 41 percent a year ago.

"The outlook for London in the fourth quarter of this year is looking gloomy, with a number of companies having already postponed their plans to float in recent weeks," E&Y's UK IPO head David Wilkinson said.

Uncertainty in capital markets following the U.S. subprime crisis led to the third-quarter drop in IPO volume at the UK bourse, with only 47 deals raising a total of $4.5 billion, a 75 percent decline in value compared to the second quarter.

Russia's UC Rusal, the world's top aluminium producer, for example, decided last month to shelve a $9 billion flotation because of concerns about the global liquidity crunch.

That would have surpassed Russia's VTB (VTBRq.L), which raised $8 billion, to be the world's biggest IPO this year.

The Moscow-based lender and Russian firm PIK Group (PKGPq.L) together accounted for more than half the $18.5 billion raised in the second quarter in Britain.

Not all Russian companies are calling off their fundraising plans, however. Eurasia Drilling Company, a Russian oilfield services firm, started a roadshow for its $450 million London IPO on Oct. 18 and Russian power company New Russian Generation Ltd on Monday set a $200 million IPO for London later this year.

Emerging markets are driving global economic growth as international investors continue to look for high return opportunities.

IPOs in Brazil, Russia, India and China reached $27 billion in the third quarter, an all-time high despite the 22 percent decrease in global IPO activity.

Among the world's top 20 IPOs in the quarter, 13 were from emerging markets. Only two of them opted not to list on their domestic exchanges.

NYSE EURONEXT GRABS SHARE

U.S bourse Nasdaq (NDAQ.O) saw its market share shrink, accounting for 5 percent of the world's total capital raised for IPOs, down from 8 percent a year earlier. By contrast, NYSE Euronext's share (NYX.N)(NYX.PA) swelled to 18 percent from 7.3 percent. While the share for Hong Kong Exchanges and Clearing Ltd. (0388.HK) and Deutsche Boerse (DB1Gn.DE) increased to 13 percent and 6 percent, from 5 percent and 2 percent, respectively. New York Stock Exchange attracted 15 percent of the world's total IPO capital raised in the quarter thanks to such deals as one from MF Global MF.N, a U.S. brokerage spun off by London hedge fund Man Group Plc (EMG.L), and Brazil's sugar and ethanol company Cosan Ltd. (CZLT11.SA)(CZZ.N).

Hong Kong Exchange (0388.HK) accounted for 14 percent of the world's IPO market share.

In the third quarter, Asia Pacific accounted for 37 percent of IPO capital raised, thanks to China, which saw IPOs raising a total of $14.4 billion.

Financial services remained the dominant sector for IPOs, followed by energy and power, E&Y said.