Global drilling services contractor Boart Longyear Ltd has debuted on the Australian stock exchange at a modest premium after raising $2.35 billion through its initial public offering - Australia's second biggest share sale.
Boart shares opened at $1.87 or 1 per cent higher than its IPO price of $1.85 but at 11.35am they were trading unchaged at $1.82 after earlier hitting a low of $1.80.
The US-based drilling services contractor raised $2.35 billion through its IPO following the acqusition of four Western Australian drilling firms.
Boart acquired Avatar Industries Ltd drilling subsidiary DrillCorp Ltd in August for $134 million, as well as drilling company Grimwood Davies, owned by Tim Goyder - the cousin of Wesfarmers' boss Richard Goyder, in January this year for an estimated $50 million to $100 million.
The drilling services provider raised $2.35 billion through its IPO, the second largest share sale in Australia, ranking behind Telstra's $15.5 billion T3 offer last year.
Boart said demand for its stock was strong with the company scaling back retail investor involvement in the IPO, but the float hasn't won over everyone.
Intelligent Investor managing director Steve Johnson questions Boart's value and said it looked expensive for a cyclical business.
"For a price of around 15 times forecast earnings to be justified for Boart Longyear, India and China would need to grow uninterrupted for years, and yet not come up with their own solution to a global shortage of drilling equipment," he said.
Boart was divested out of major miner Anglo American in 2005 for $545 million to Advent Corporation, Bain Capital and senior Boart management.
A Macquarie Bank-backed consortium bought a 60 per cent stake in Boart in 2006.
Mr Johnson notes the Boart prospectus states the drilling services company would not retain any of the proceeds of the $2.35 billion offer but would use it to retire a portion of the group's debt.
He said Boart didn't need the money but the existing owners wanted out and a float was the most profitable way for the owners to exit the company.
"So the Boart business doesn't need the money ... and a float has been deemed the most profitable way to leave," he said of the exiting parties.
Advent Corp and Bain Capital divested their holdings through the IPO.
