There may be plenty of cash about, but the IPO market is struggling as investor confidence remains low.
There may be plenty of cash about, but the IPO market is struggling as investor confidence remains low.
THE initial public offering market has become a shadow of its boom-time hey day, having all but stalled after raising a meagre $195 million through 25 floats for the year to date.
Perth-based brokers have been the engine room of growth for the ASX for several years, growing to represent 895 companies or more than a third of the exchange by number, during a growth spurt that started around 2004.
However, the tough global economy and volatile commodity prices have affected investors’ appetite for IPOs as much as for other corporate finance activity, most notably this year.
By comparison, in the first nine months of calendar 2011 there had been about 80 IPOs in Western Australia, which had raised about $750 million. And last year was light compared to the really big boom years in terms of the number of floats and, more significantly, their value.
According to research for the WA Business News Book of Lists, 2011’s grand total for IPOs was $846.9 million in 92 announced floats. While some of those were delayed due to market conditions and did not end up listing in 2012, they represent just $30 million in capital that is duplicated in these figures.
No-one in today’s markets sees any likelihood of a significant turnaround in the sector during the last three months of 2012.
In the heady days of 2006 and 2007, about 250 Perth-based companies were listed on the stock market. That business slowed in 2008 as the ramifications of the sub-prime market difficulties in the US slowly infected global markets. Even still, in the financial year 2007-08 about 100 companies worth more than $2 billion were listed out of WA.
The 2012 performance so far also owes a lot to the decision by mining services player Calibre Group to commit to an IPO, raising $75 million through the sale of around 16 per cent of the company.
Calibre’s experience won’t have served to give others considering a listing much confidence, however.
In the two months since it first hit the market its shares have slumped about 35 per cent as the volatility around the iron price has hurt miners and flowed on to their service providers.
The majority of floats this calendar year have gone backwards or, at best, held their value.
A handful of 2012 listings have performed positively; only Pura Vida Energy has anything to write home about, having quadrupled in value since listing in February this year.
CPS Securities managing director Tony Cunningham said the Pura Vida float had helped keep the wheels of the firm’s corporate finance business turning because it allowed investors to take a profit and back other IPOs.
CPS has been the most active of the brokers involved in IPOs this year, floating four companies with a combined raisings of $18.5 million.
Mr Cunningham was reluctant to take too much credit for the result, highlighting the benefit of having strong success stories like Hunnu Coal in 2010 and Pura Vida this year, which allow the small pool of investors willing to commit to IPOs in this market to roll over their gains into new floats.
“We have been lucky with Hunnu and other stocks,” Mr Cunningham said.
“People have been able to sell out and move on to the next one; they have not been craypotted.”
He said it was a challenging market, with some exotic areas like graphite doing well and, in general, oil and gas.
“There is so much cash out there but people are not interested in putting it into a stock that they could be stuck in for six to 12 months,” Mr Cunningham said.
Patersons Securities has revealed its tough year in its annual results (see Staff shed amid falls), which included corporate finance, an area that started well in the 2011-12 financial year but fell away as investor interest in mid-cap resources waned.
It was the second most active IPO player in WA with three listings worth a combined $25 million.
DJ Carmichael managing director Ian Dorrington said the quiet IPO market reflected the wider issues for those operating in equity markets, but he was hopeful other parts of the sector were improving.
“It has been a horrendous period for brokers around the world,” Mr Dorrington told WA Business News.
“There seems to be a gently increasing level of activity.
“I think capital markets that were closed for so long have started to slowly open, if the deal is right and correctly priced.
“Confidence has been knocked badly and it will take time to recover.
“I don’t see IPOs coming back any time soon.”
What sometimes goes unnoticed when IPOs are down is that recapitalisation of failed listed entities, colloquially known as backdoor listings, tends to rise when investors shun the market.
ASX figures show that, in 2012, nationally, there were 42 re-compliance listings (the ASX-preferred term), of which 28 were done in Perth -more than the number of IPOs during that period.
WA typically does more than half of the recompliance listings, which often boosts the number of Perth-listed companies because shell entities are often transferred here as part of the process.
“That is because the expertise is here with the corporate advisers and lawyers,” one market observer told WA Business News.
“Projects are still getting listed, they are just doing that via this method.”
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