Biggest UK IPO In 5 Years, AI Valuation Fears, Padel’s $300M Bubble

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0:09 This is the Bloomberg Daybreak Europe podcast. Good morning. It's Friday, the 9th of October. I'm Caroline Hepke in London. Coming up today, a tale of two cities.

0:17 Airtel Money brings London its biggest IPO in five years, just as Revolut reveals it's targeting a New York listing. OpenAI says that it expects annualized revenue to hit $ 70 billion this year, just as investors grow skittish over frothy valuations in the sector. Plus, is Paddle's $ 300 million UK bubble about to burst? The sports boom has lured players and investors in Britain, but cracks are starting to show.

0:48 Let's start with a roundup of our top stories. The City of London is set to see its largest IPO in years when markets open today. Airtel Money plans to raise £ 529 million by selling shares at a price of £ 1.

0:58 96.

0:58 It's Terms seen by Bloomberg would give the firm a market value of £ 5.

1:08 3 billion. Bloomberg's James Wilcock has more.

1:12 At its peak, London saw £ 37 billion worth of listings in 2007. But since then, it has slumped from being a stock market engine, struggling to hit even £ 2 billion of listings a year. That makes Airtel's size an outlier, as does its choice to list when others are delaying because of rising interest rates. How the company trades in the coming days and weeks will be the next test in London's efforts to revitalise its capital markets. In London, James Woolcock, Bloomberg Radio.

1:44 Revolut's founder Nick Stronsky says that he wants the bank to have its primary listing in the US. Stronsky told Bloomberg's Tom McKenzie that if the firm goes to market, it will be American first.

1:58 There was always a target given deep liquidity in the U.S.

2:01 Market.

2:02 So, yes, if we do IPO, we'll do obviously in the U.S.

2:06 Yeah.

2:07 So, dual listing, U.K., U.S., but primary would be in the.

2:10 U.S.? Yes.

2:11 Private valuations of Revolut suggest that Stronsky is Britain's wealthiest man. Bloomberg Intelligence says that Revolut is outperforming all other global neobanks, growing its user base by 22% in the past 12 months. Sources tell us that OpenAI expects annualized revenue to reach at least $ 70 billion by the end of this year.

2:33 Bloomberg understands that that would be up from roughly $ 50 billion at the end of September. Now, the figures came after Thursday's U.S. close when tech stocks sold off on reports that OpenAI's revenue would fall below some estimates. Mark Cranfield is Bloomberg's markets life strategist.

2:52 Investors are put in a position where they see some of the numbers which don't come up to these elevated forecasts. They sit back and say, well, we're paying too much for some of these stocks. Now, it doesn't mean to say that the AI theme is going to die immediately, but we still need to justify these incredible projections.

3:12 Mark Cranfield there.

3:13 The latest revenue forecast comes as OpenAI seeks to raise at least $ 30 billion at a $ 1.

3:17 4 trillion valuation.

3:23 Signs of investor pushback against the huge sums being poured into artificial intelligence, though, are mounting. NVIDIA-backed Firmus has abandoned an Australian IPO after struggling to attract investors at a $ 30 billion valuation. Now, that valuation had almost tripled in just three months, despite Firmus reporting $ 51 million in annual revenue.

3:48 Manuel Maigori leads our Asia-Pacific deals coverage.

3:52 It's a clear sign that investors globally are becoming more discerning on the quality of assets and where they want to deploy capital. And obviously, AI-related firms, in this case, data centers with firms in case, need a lot of resources to build and operate these facilities. Case in point, firms with very, very little, if any, track record in this space, obviously, was creating an equity story based on future projections.

4:22 Manuel Baigori there, as signs of strain also show up in credit markets. Bloomberg calculates almost half a trillion dollars of new debt has been priced this year to fund AI infrastructure. However, the cost of insuring that debt is now on the rise as investors reassess the risks. Let's turn to some European news now. So, the EU is urging Euro area governments to show budget restraint as borrowing costs rise. Speaking after a meeting of finance ministers, European Commission finance chief pushed back against calls from Italy and from Greece for more fiscal flexibility. Valdis Dombrovskis said that there cannot be new fiscal flexibilities all the time. The warning comes as French borrowing costs surge with pressure also

5:09 spreading to bond's from Italy, Greece and Belgium. President Donald Trump says that the US will not be attacking Iran before November's midterm elections. His comments on social media come despite Iran escalating attacks on tankers in the Strait of Hormuz and Tehran-backed militants attacking Saudi energy facilities. Bloomberg's Tyler Kendall says that Trump's decision follows reports that he was considering military action imminently.

5:36 This reporting, as you mentioned, from the Atlantic overnight, which seemed to put on the table that President Trump could be looking at an array of options to escalate the conflict ahead of the midterm elections. And what was interesting about the reporting was that it seemed to suggest that proponents of strikes, whether or not they could be limited ahead of Election Day and then a wider scale operation after Election Day, seemed to think that it could give President Trump a political win in a sense as diplomacy does remain stalled.

6:05 Our Washington correspondent, Tyler Kendall, speaking yesterday as Brent crude dropped more than 1% to below $ 103 a barrel. Now to the UK, the Labour Party has won a special election for a London parliamentary seat, defeating the Green Party. Labour's Sehgal Abdiwali took 45% of the vote in Holborn and St Pancras, ahead of the Green Party leader, Zach Polanski, on 33%. He says that the result is still positive for his party.

6:37 What just happened in Hobart and St Pancras is we over-tripled our vote share.

6:41 Of course I wanted to win.

6:42 No one runs an election to lose. But ultimately what I've seen over the last few weeks are people who are excited about our plans for rent controls, tackling the climate crisis and nationalising Thames water.

6:53 The leader came into the vote facing blowback after his party passed a controversial motion at its annual convention last week to class Zionism as racism. It's a move that some members worried would put off centre-left voters. And lastly, two Latvian men have been arrested on suspicion of national security offences at a military base in Cambridgeshire. The 30-year-olds are being questioned by counter-terrorism police after being caught near RAF Molesworth.

7:26 The incident comes.

7:27 Just weeks after a suspected terror plot at another UK base that was home to American bombers. Those are our top stories for you today. Let's get into the markets then this Friday.

7:37 U.S.

7:37 And European stock futures are pointing to a higher open. We're up by half of 1% for the U.S. stocks, 50 futures. AI, sorry, AI is one of the themes. Open AI's estimated revenue that we were talking about there, that has also helped to lift stocks in Asia. MSCI, Asia Pacific Index up three-tenths of 1% this morning. Yesterday, though, we did see quite a bit of selling in Europe.

8:00 The stock 600 down by seven-tenths of 1%. And European banks really bore the brunt of that. The bank sector falling as much as 2.2% on the day yesterday. Sovereign bonds are still very much in focus. The French 10-year yield sitting at 4.9%. The spread over German bunds at its widest since 2011. And 10-year UK yield yields at 5.48%.

8:21 Brent crude futures this morning are down by 1.3%, $ 102. 90 the barrel. So, those are the markets this hour. Now, in a moment, we'll bring you more on London's biggest IPO in five years.

8:37 And paddle, have you played it?

8:38 The boom may be turning to bust for this fast-growing sport. Before we get to that, though, a really fascinating story. So, we are tracking AI very closely for you. Do you say please and thank you to your AI model? Anthropic has updated its usage policy to prohibit sustained and needless abuse of cruel behavior against its clawed AI model. It doesn't apply just to the day-to-day frustrations. But sustained mistreatment of Claude can basically mean that Claude just ends the interaction. Now, this is so fascinating. The AI world is baking in perhaps the possibility of conscious AI, dubbing it model welfare.

9:21 OpenAI's tech billionaire, Sam Altman, has talked about this, that it costs tens of millions of dollars when people say please and thank you to their chatbots. he made those comments in futurism but he did say that the money was well spent because you never know others see it as more though of a mirror that ai absorbs and reflects the prompts back at you so yeah it's sort of a strange moment isn't it perhaps one could wish that the industry would go further you know giving artificial intelligence human rights effectively before you perhaps give all human beings human rights you know means food for thought for all of us i think this kind of huge philosophical debate obviously Microsoft AI chief Mustafa Suleiman has the opposite

10:06 view AIs are not conscious and giving them rights and moral protections is a recipe for disaster in his words.

10:15 Right.

10:16 That's one of the stories that I've been thinking about today. Let's also, though, think about London. One hit and one prize for effort. That's how I'll describe the IPO news in London today. Charles Capel is our European Equity Capital Markets Editor and Daybreak Europe regular and joins us this morning. So, let's start with the hits, shall we, Charles? I know you've been talking about this for weeks. Airtel Money is launching on the London Stock Exchange today. Tell us about the pricing and how much is being raised.

10:45 Yeah, look, it is a.

10:46 Very, very exciting day. And it is a day that potentially sets up the city for something which could be a bit of a narrative turnaround. Now, Airtel Money is a payments processing platform. It operates across Africa crucially operates in the mobile payment space. Their shareholders, I should say, are selling 270 million shares at £ 1.

11:07 96 each.

11:07 Now, that's going to raise about £ 530 million, $ 700 million. And some more shares could also be sold to bring the total up.

11:11 To $ 770 million, which would be the largest since 2021.

11:14 So, it is a very, very exciting day.

11:31 So, why is it also so important specifically for the London stock market to actually win this IPO?

11:38 Well, look, I think part of it is because there have been a dearth of listings. In general, right. And there haven't been many IPOs recently in London. And so, getting this one helps add to the total and it helps provide a data point for anybody looking to see if London is a good place to list. And they can say, okay, well, look how Airtel Money traded. Look at the demand on Airtel Money's IPO. I think the other thing is it shows that London's reforms to try and attract international listings are are starting to pay off.

12:12 They've created a special segment for additional listings of international companies. They've made it easier for international companies to join the FTSE UK indexes. So, for example, you can now be traded in dollars or euros, but still be in the FTSE 100. That's very attractive for a company that wants to operate in dollars. So, those kind of reforms are all focused on attracting international capital. And Airtel Money, a company that operates in Africa that could have really listed elsewhere, and we know we're looking elsewhere, picking London is kind of a big deal.

12:45 Okay.

12:46 And so, to the runner-up prize, Revolut, its primary listing is going to the US. I mean, the CEO speaking to Bloomberg. I mean, maybe it's the new normal. Should we think about it being a runner-up prize?

12:57 Yeah.

12:58 Do you know what?

12:59 A number of people have said this, that the UK should think of itself as the U.S. 's growth market or additional market. I mean, we could take it that way. I personally don't find this news massively surprising. If it wasn't a secondary listing, by nature, it would have been a secondary listing sort of in effect, right? You know, it was always going to be secondary to the U.S., where there's so much more liquidity, where the profile will be much higher, the trading volume would have been much higher. So, having London as a secondary listing does kind of make sense when it will ease the regulatory burden and help sort of clarify Revolut's story.

13:45 Okay. Charles, thank you so much for speaking to us this morning. I know you have a massively busy day, but we're going to be hearing from you a bit later on during the morning. Charles Capel is our European Equity Capital Markets Editor and Daybreak Europe Regular, taking us through this big London IPO, Airtel Money, today. Stay with us.

14:06 More from Bloomberg Daybreak Europe coming up after this. Now, have you tried paddle? The sport has grown rapidly. It's easy to learn. The courts take up less space and it has loads of celebrity aficionados. Investors have also poured in at least $ 300 million into UK paddle companies in recent years. This according to Bloomberg Calculations. But the bubble shows signs of bursting, perhaps. Louise Moon, our breaking news editor, joins us now with more on this. Looking at the data and coming up with that number. Louise, why has paddle become so popular seemingly so quickly? I'm tripping over people who are playing paddle.

14:47 Well, exactly.

14:47 I mean, so in terms of a sport, it actually dates back to it was founded in 1969 in Mexico. Obviously, it has become a huge hit there. in Southern American countries and in Spain. And then it was only actually recognised in the UK officially in 2020. So it's a lot more of a recent phenomenon here. And then, as you say, it's really easily accessible in terms of levels of playing.

15:09 It's fun.

15:10 It's an easy, fun sport to play. And it's booming in popularity. So the LTA, the Lawn and Tennis Association in the UK, they estimate that there's actually a million players now in Britain. And then that is fuelling this huge... Yeah, absolutely. I mean, I even heard a campaign that they want to make this sport an Olympic sport.

15:45 Look, how much has been invested then in this game in the UK?

15:50 Well, so we calculated.

15:51 So, based on company announcements as well as speaking to companies as well and tallying up this figure, we've calculated that it's at least $ 300 million has been invested in. This is across a number of operators, and they've all got various different scales. And then, as you say, I mean, this comes from some of that celebrity investment. You mentioned that earlier. So, for example, Andy Murray, the former tennis star, he's invested in a company called Game 4 Paddle, which is based in Edinburgh. But it's also from big corporates, family offices, mom and pop investors, angel investors. So, it's flowing kind of from all corners.

16:30 Yeah.

16:32 And yeah, we've calculated that figure of being at about 300 million US dollars.

16:37 Yeah, it's a big sum, isn't it? And so what are the signs then that the wave may be cresting?

16:43 Well, so there's already been a couple of cracks beginning to show. So there's two companies that one is going through an administration process. That's a form of insolvency in the UK. Another one went into liquidation earlier this year. So that's just signs of of that beginning to crack but also speaking to people they're saying that because of this kind of rush in there was one uh one person i spoke to that had a great quote saying there's people that swimming swimming with their trunks down so essentially they're going in um and and uh you know really trying to make this work but the costs are high And you've got to rely on high occupancy and being able to charge high cost per hour as well

17:26 for a continued amount of time. But as more people come in, there's going to be more competition. Those prices that you'd be able to charge are going to come down. And then those people, you know, they're tied into these huge rental contracts.

17:39 They won't then be able to afford that.

17:41 So there's already some cracks beginning to show and a lot of people saying that they're conscious of, of um of too many people piling into the market and then that not being sustainable um and you know there was another quote saying one big operator in the uk saying i'm very conscious of there'll be a time when paddle won't be as cool and so they're trying to become more sustainable operators to be able to survive going.

18:04 Past that Thank you for listening to Bloomberg Daybreak Europe.

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