With new supply of equities set to reach a record in Europe this year, the mixed success of recent offerings is leaving issuers and their bankers largely unfazed. Having seen their plans to tap equity markets shelved after the Asian and Russian crises last year, many companies are planning to return en masse.

Equity supply has more than doubled over the last four years, boosted by privatisations on the continent and, more recently, an unprecedented wave of corporate restructuring in the wake of monetary union. In 1997, offerings breached the $100bn mark for the first time. The traditionally quiet first quarter has this year produced $17.2bn of new supply, including the £1.85bn sale by Germany's Veba of its Cable & Wireless stake, the biggest ever bought deal.

The recent pick-up in markets across Europe has convinced many investment bankers to resurrect some of the $30bn worth of deals that were suspended during last year's financial crisis.

The Neuer Markt, Germany's fast-expanding growth-company stock exchange, has been one of the most active in this respect, with new companies getting listed on the exchange almost on a daily basis in recent weeks and a planned E3.6bn of new shares expected to be sold in the first half of the year.

"Issuers are getting more proactive and they tend to come to the market spontaneously if they believe they can get a good valuation," says Robert Thys, director of marketing for Euro.NM, the pan-European alliance of growth-company exchanges.

Across Europe's senior markets, the telecoms, banking and transport sectors will generate the biggest inflow of new equities this year, according to Salomon Smith Barney.

The single largest deal will be Deutsche Telekom's mammoth E10bn secondary offering planned for the third quarter. The privatisation of France's Credit Lyonnais will be next, with $4bn on offer. Other blue-chip names such as Siemens, Deutsche Bank and Iberia will follow, with offers ranging from $2.5bn to $3.5bn.

The volatile performances of these sectors in recent months, however, and the chilly welcome given to some of this year's most prominent deals has raised some questions about the reception in store.

"Multiples are climbing to unseen levels and we are entering territories where investors might be content to see their profits pile up while being reluctant to buy into new equities, even at a discount," says a banker at one of Europe's biggest issuing houses.

On the demand side, the enthusiasm of private investors for equity mutual funds, which has driven exchanges such as the Neuer Markt to stratospheric heights, has not entirely recovered from last year's outflow. Investors have been switching out of national funds into pan-European ones, leading to a stagnation in the net buying of funds.

One result is that some high-profile new issues, although heavily oversubscribed, have had difficulties trading at their offer price in the aftermarket. The E558m spin-off of telecoms group Debitel by its owners Metro and DaimlerChrysler in March is a case in point. Although the deal was 14 times oversubscribed, Debitel's shares have steadily fallen from their issue price of E31.

ost observers, however, dismiss such incidents as a blip which can be overcome with more sensible pricing of new issues.

"Many newcomers to the market took soundings from short-term retail investors interested in a quick profit rather than more stable and loyal institutions," says one banker. "The result of over-ambitious pricing has been that many small shareholders put their hands on the stocks only to resell them, driving prices lower."

James Cornish, European equity strategist at BT Alex Brown, sees little risk of an oversupply of equities. The current vogue for share buy-backs and increased dividend payments, he says, is providing excess cash to investors while reducing the overall pool of equities. The fact that many new issues, such as Deutsche Telekom's planned offering, have been launched to finance M&A activity goes in the same direction.

"With the birth of the euro, there is also a tendency for corporate players, even with low or no ratings, to raise capital on the now much wider euro-denominated bond market, which is increasingly seen as an alternative to rights issues," says Mr Cornish.

Far from seeing new issues exceeding demand, some are warning of a slowdown in offerings towards the end of the year. "Part of the reason for the large number of deals in the pipeline," says one banker "is that issuers are rushing to complete their offerings before November because they are getting nervous about being exposed to the year 2000 problem, when investors will be winding down their books."

"Investors are still holding a lot of cash," he says, "and as long as interest rates and bond yields remain at their current level, liquidity will keep driving markets higher."


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