SpaceX IPO: Public Issue Of Elon Musk’s Company May Be A Test For Wall Street Banks, Says Report

Elon Musk's SpaceX is set to make its stock market debut on June 12. Ahead of its initial public offering (IPO), the rocket maker's bankers are preparing for a big test - how to list a $1.78 trillion company on Wall Street when technology stocks are being volatile.

SpaceX's public issue is set to be the biggest IPO in history. With an expected share price of $135 apiece, several people involved in the deal told Financial Times that the fixed price of the stock left underwriters with less flexibility than is usual in a conventional listing.

While people close to the SpaceX IPO say that orders have exceeded available shares by at least three times, there is no guarantee that the stock will rise once it starts trading.

Ensuring steady trading at a time when high tech valuations are being reassessed by investors and hostilities continue between the US and Iran despite a fragile ceasefire is far more difficult.

Shares in many big technology groups have dipped sharply due to uncertainty over when AI investments will generate returns as well as fear of an interest rate hike. Any volatility can directly impact the demand for SpaceX's stock and put pressure on its banks.

SpaceX is seeking a valuation of over 90 times its revenue last year by selling less than 5% of its stock, an unusually small “free float” compared to typical IPOs. The company has hired at least 21 banks for underwriting its IPO, including Morgan Stanley, Bank of America, Citigroup and Goldman Sachs.

Around 4,400 current and former SpaceX employees are expected to become millionaires via their stock holdings once the IPO launches, the New York Times reported.

This week may prove particularly difficult for an IPO launch, FT reported. The IPO market usually slams down when the Vix index, a measurement of expected volatility in US equities, goes above 25. On Tuesday, the Vix, seen as Wall Street's “fear gauge”, rose as high as 23.34, the highest since early April.

In case of a sell-off, Morgan Stanley, SpaceX's stabilisation agent, could buy back an extra 83 million shares allocated to investors. Musk, meanwhile, is counting on retail investors to back the deal.

Due to new fast-track inclusion rules put forward by some major index providers, passive fund managers could be forced to channel billions towards SpaceX in the 15 days after it goes public.

But the stock's performance on the day of its listing is still uncertain. Hedge funds and long-only investors will buy much of the IPO's stock. Whether they plan to buy and hold the shares or sell it for a quick profit will determine the company's short-term success.