Earlier, the U.S. government averted a shutdown on October 1 in the last three hours, but the threat was not over, only postponed until November 17.
In addition to the impact on the U.S. economy, markets, and the Fed's decision, the potential threat remains against the backdrop of concerns that the U.S. initial public offering (IPO) market, which is just showing signs of recovery, will also be affected. If the US government shuts down later in November, the Securities and Exchange Commission will be left with a skeleton staff, preventing the agency from effectively reviewing new listings.
For most of 2023, the U.S. IPO market has been weak. Statistics show that as of mid-September, only $14.2 billion was raised in U.S. IPO deals, a 94 percent plunge from the record level of financing in 2021. The situation only improved in September. September saw three big ipos - chip maker Arm Holdings Plc, Maplebear Inc., owner of online grocery delivery company Instacart, and Klaviyo Inc., a marketing and data automation provider. Those deals pushed U.S. IPO volumes to $21.6 billion for the year, nearly matching last year's $22 billion through Oct. 6, but still a far cry from the $265 billion for the same period in 2021 (a roughly 92% plunge).
Now, companies that had hoped to go public this year must either close deals in the second half of October or wait longer because of the potential government shutdown. Rubrik Inc., a Microsoft-backed cybersecurity software and services company, postponed its initial public offering, which was scheduled for Tuesday, because of doubts about the stock market and its IPO approval prospects, according to people familiar with the matter.
Previously, the longest government shutdown in modern U.S. history was 35 days in 2018-19. No ipos have been approved during this period. While EDGAR, the electronic filing system for filings, will remain open during the shutdown, any IPO filing will require the close involvement of the SEC, which typically takes about 60 days to review and comment on the initial draft of an IPO filing, financial information and subsequent revisions, and is rarely approved with just one revision. That means any IPO filed before the end of October could see its final pricing change around November 17, just in time for a possible government shutdown, leaving little margin for error for both the investment banks underwriting the ipos and the issuers themselves.
Davis Polk & 'If companies don't see a clear path forward after filing an IPO, where they can be reviewed by the SEC within a certain time frame, they are prone to hold back on filing,' said Richard Truesdell Jr., a partner at law firm Wardwell.
Earlier, Xinhua News Agency reported that the US House of Representatives voted on the 3rd to replace the Republican Speaker of the House McCarthy. The driving force behind this is the bipartisan budget fight. At the last minute, McCarthy passed a temporary budget that avoided a government shutdown, but the conservative wing of the Republican Party was unhappy. Paul Christopher, head of global investment strategy at Wells Fargo investment Institute, said the search for a new House speaker could take a long time, Keep U.S. stock investors and the U.S. IPO market on edge for weeks to come. "In January, McCarthy was elected Speaker after 15 rounds of voting. How long will it take this time? The partisanship is futile, a waste of time, and has created a real challenge for itself."
Kati Penney, director of corporate trading at Cross Country Consulting, said U.S. companies already face multiple risks, and now "with the possibility of a government shutdown, issuers are being forced to carefully consider the risk of a government shutdown, and more contingency planning is coming into play."
Samir Gandhi, a partner at law firm Sidley Austin LLP, warned that not only will IPO filings in the fourth quarter of this year be affected, but companies set to launch ipos in January could also feel the pinch if the SEC faces a backlog of filings after the shutdown. Application preparation may be delayed until the shutdown, or even longer.
Companies that are already public are less threatened by a shutdown, especially those with "Well-known Mature Issuer (WKSI)" status. This identity allows them to automatically implement a one-time registration, multiple issuance of the shelf issuance mechanism, that is, there is no need to specify the class and number of shares issued, and then in the actual issuance, only the issuance of supplementary prospectus can be issued, and the supplementary prospectus will take effect once registered, and the SEC will no longer review. Typically, companies with $700 million in publicly traded stock and more than $1 billion in Tier 1 bonds can receive WKSI status. Foley & Curt Creely, a partner at law firm Lardner LLP, said that means a shutdown would hit small, private companies that don't have the right to issue shelves disproportionately hard.