By bigbreakingwire Blue-chip companies in the US are finding it more cost-effective to issue shares instead of borrowing in the debt markets for the first time in over twenty years, according to Bloomberg data.
Globally, IPOs and secondary sales have raised roughly $50 billion.
A Utah-based company, after three years of losses, decided to avoid debt and pay off its loan. Borrowing would have cost over 10% in interest, three times the rate a few years ago, so they chose to issue equity instead.
While debt is still important for many companies worldwide, some analysts don’t expect a surge in equity issuance. However, if more companies shift from debt to equity consistently, it could have significant implications for corporate finance and broader markets.
Over the past two decades, the global stock market has been shrinking. In the US alone, the number of publicly traded companies has nearly halved from about 7,500 to around 4,000 today. The UK and Germany have also seen similar declines.
The process accelerated due to ultra-low interest rates in the post-crisis years. Companies borrowed heavily for acquisitions and share buybacks, leading to more public companies being owned by private equity.
A reversal of this trend could reduce companies’ reliance on debt, lessen the influence of private equity, and limit creditor claims on assets. It would also increase public ownership and corporate transparency.
While a surge in initial public offerings (IPOs) and secondary sales might initially lower valuations and returns in the short run, it could give the investing public better access to young, early-stage growth companies in the long term. This would bring more balance to a market currently dominated by large, established companies like Apple and Microsoft.
Stay informed with our financial updates, stocks, bonds, commodities. Get global & political insights. Follow us & enable notifications for the latest updates.