Economic conditions stall IPOs: DeloitteDOWNLOAD
20 December 2011: Economic conditions in Australia and overseas have again proven a barrier to initial public offerings (IPOs), as global equity market volatility and lack of investor confidence resulted in an estimated 200 IPOs around the world being postponed or deferred in 2011.
Releasing preliminary data from the 2011 Deloitte Corporate Finance IPO Survey, Deloitte Corporate Finance Partner Steve Woosnam said: “While the 2011 calendar year was set to end with 109 IPOs, up 10 from 2010, the absence of large listings meant the value of funds raised ($1.6b) was considerably lower than in 2010 ($7.7b) and was one of the lowest in the last ten years.”
In 2010, raisings by QR National and Westfield Retail Trust inflated the total of funds raised accounting for $6.1b of the total of $7.7b raised.
In 2011, the top ten floats accounted for only $1b ($6.8b in 2010), with a large number of small companies driving IPO numbers. Outside the ten largest IPOs for 2011, the remaining 99 raised $670m, an average size of $7m per listing, down from just under $10m in 2010.
The continuing tough conditions are clearly demonstrated in the quarterly data with the listings of QR National and Westfield Property Trust in the December quarter in 2010, and Myer in the final quarter of 2009, the key drivers of the IPO value in recent years.
“The numerous postponements have, however, created a growing backlog of Australian companies for whom an IPO remains an option if market conditions improve,” Mr Woosnam said.
“Some offshore entities are also expected to seek to unlock cash from their Australian assets through the IPO market in 2012, and the current strength of the Australian dollar in particular makes this an attractive time to repatriate funds to offshore parent companies.”
These include, Hong Kong-based China Light and Power, which is exploring options in relation to the sell down of part of its multi-billion dollar energy company, TruEnergy, and mortgage originator, Genworth Financial Inc, which is reported to be seeking to sell a 40% stake in its Australian operations via the capital markets.
“Market conditions will dictate the size of the IPO market and the outlook remains tough, however from a supply perspective, the signs are positive if market conditions improve,” Mr Woosnam said.
“It is also interesting to note that the increasing involvement of Asian buyers in the Australian market has created another option for Australian businesses looking to exit or raise capital, and this may reduce the number of Australian businesses looking to list on the ASX as better value may be obtained elsewhere
2011 IPO performance
For those IPOs that did list in 2011, less than a third are currently trading above their issue price. On a weighted average basis, 2011 IPOs fell 16% compared to the ASX100 (down 9% for the year) and ASX 200 (down 10% for the year).
Some small scale mining and resources IPOs again fared well in 2011. This year’s best performing IPO to date has been Ventnor Resources, which listed at 20 cents per share in February. Its share price has since quadrupled following confirmation of mineralisation at its Thaduna Green Trading project site.
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