SpaceX's IPO is only 4x oversubscribed. Spare a thought for the bankers selling it
Today is the day of the SpaceX IPO. Bloomberg reported yesterday that its 555.6m shares are "more than 4x" oversubscribed. That sounds impressive. Quietly, though, some equity capital markets bankers are suggesting that maybe it's not.
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The SpaceX IPO will be the biggest IPO of all time and it is expected to value the company at $1.8 trillion. The previous biggest IPO of all time was that of Saudi Aramco in 2019, valued at only $29.4bn.
Saudi Aramco's offering was 465% oversubscribed. However, some bankers are suggesting that the Saudi Aramco IPO and SpaceX are not comparable. Although Saudi Aramco was also marketed to both retail and institutional investors, the demand for its stock came primarily from investors in Saudi and the Middle East. The WSJ noted at the time that non-Saudi institutional investors only received 23% of the allocation. By comparison, SpaceX is being marketed internationally, including a retail allocation of 30% versus the standard 5%. "We've all had the emails from Hargreaves Lansdowne," observes one banker. "I can't remember the last IPO that had this much hype around it. The FOMO is real."
In the circumstances, then, a 4x over-subscription might be conceived as modest. The institutional tranche, which accounts for 70% of the total, should be above 4x covered in the opinion of some bankers. It's worth remembering that Figma's (much smaller) $1.2bn IPO last summer was 40 times oversubscribed.
It's possible, then, that the bankers who've competed hard to get a role selling the SpaceX IPO are not having an entirely easy ride. It may not help that SpaceX has set a specific $135 price for its shares, instead of using the standard approach of offering a price range and seeing what investors are willing to pay. The WSJ reported earlier this month that SpaceX did this because it felt it had sufficient demand for its shares to fix a price.
Given that the IPO is 4x oversubscribed, maybe this was the right approach? However, 4x coverage isn't necessarily the achievement it seems. Bankers also observe that much depends upon whether the institutional demand is coming from long only investors or from hedge funds. Long only investors are far preferable. "4x coverage from hedge funds would be a bad thing," says one senior banker. Being on an ECM team at a hedge fund is often hard simply because syndicate desks in banks won't allocate to you.
All will become clearer when the stock floats tomorrow morning. Goldman Sachs and Morgan Stanley, which are leading the SpaceX deal declined and didn't respond to a request to comment respectively.
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