Hong Kong / Sydney - Bankers in Australia have much to cheer this Christmas as fees from underwriting initial public offerings (IPOs) surged tenfold this year, and many are now betting on an equally active year in 2014 as a spate of private equity exits keeps the market busy.
This year, companies are expected to have raised about $6 billion (R61.8bn) through IPOs, six times last year’s total and the highest since 2010.
Yesterday, shares in education training provider Vocation opened up 10 percent on their A$1.89 (R17.70) offer price after the company raised A$253 million in its IPO. Vocation last traded at A$2.06, giving the company a market capitalisation of A$412m.
The company’s upbeat open came after a strong performance from peers Navitas and G8 Education, said Evan Lucas, IG’s market strategist. Navitas’ shares are up 27 percent so far this year, while G8’s have risen 89 percent in the same period.
“It’s in the right area, it’s in the right industry, it’s certainly getting the attention that it requires, and that’s why you’ll probably see Vocation doing quite well today as well,” Lucas said yesterday.
The rush of listings, most of which are concentrated in the last two months of the year, have led some bankers to predict an IPO pipeline of at least $5.46bn next year, defying a slowing domestic economy weakened by falling commodity prices.
The resurgence follows two lean years in 2011 and last year when investor appetite for new issues slumped due to global economic uncertainty and a rash of poor performances in secondary markets.
“In Australia, we’ve been through a series of interest rate cuts… and that combination of historically low rates plus confidence around the global growth picture as well as lower volatility has attracted a lot of investors back into equities,” said Hugh Falcon, the co-head of equity capital markets for Australia and New Zealand at Macquarie Group.
The Australian IPO market has been the third-busiest in the Asia-Pacific region, behind Hong Kong and Singapore, rising from 10th place last year, Thomson Reuters data show.
The estimated fees from underwriting IPOs in Australia has jumped to $110m this year, according to Thomson Reuters/Freeman Consulting, with home-grown Macquarie dominating the league table followed by Swiss bank UBS.
“The challenging environment of the last four or five years meant the IPO windows that have occurred were very short. This has meant we have witnessed a lot of pent-up demand from issuers to go to market in recent months,” Falcon said.
For investors, buying into new listings has been more profitable than betting on already listed companies, further emboldening issuers.
Companies such as OzForex Group, Veda Group and Steadfast Group have risen more than 40 percent from their offer prices. That compares with an 11.6 percent gain in the benchmark index this year.
Packaging company Pact Group is due to list next Tuesday after raising A$649m in Australia’s biggest IPO this year. The second-largest was Nine Entertainment, which had its market debut on Friday.
Travel insurer Cover-More Group, seeking to raise A$521m, plans to start trading two days after Pact.
There are some concerns the Federal Reserve will call an end to easy money in the US, and worries about the outlook for the Australian economy.
The Reserve Bank of Australia predicts growth will stay below par at about 2.5 percent through next year before hopefully picking up the following year as exports and domestic demand help offset a cooling mining boom.
Among the companies expected to list next year are government-owned insurer Medibank Private and healthcare business The Healthscope Group, owned by private equity funds The Carlyle Group and TPG Capital Management, according to a banking source.
Facilities management outfit Spotless Group, owned by Australian private equity fund Pacific Equity Partners, was also expected to launch an IPO, the source said, adding that those offers could potentially raise more than A$1bn each.
The long-delayed $3bn IPO of Hong Kong utility CLP Holdings’ Australian unit, EnergyAustralia, formerly known as TRUenergy, is another possible deal, bankers say.
“Next year there is potential for a lot more floats and a lot bigger floats, and I think the deal size is the key point of difference,” said Sean Walsh, the head of equity capital markets for Goldman Sachs in Australia. – Reuters