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After record year, Australia's IPO market to struggle in 2015

Tuesday, December 16, 2014 - 12:50
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Australia is set for a slowdown in initial public offerings in 2015 after a record this year as lackluster performances by recent listings and jittery stock markets caused by a slump in commodities prices cool investor enthusiasm.

[SYDNEY] Australia is set for a slowdown in initial public offerings in 2015 after a record this year as lackluster performances by recent listings and jittery stock markets caused by a slump in commodities prices cool investor enthusiasm.

Investment banks in Australia will, as a result, see their equity markets fees drop from the estimated US$370 million they earned this year from the IPO surge, that also helped foreign banks encroach upon leader Macquarie Group's turf.

IPOs in Australia have raised US$14.67 billion so far in 2014, more than double last year's US$6.2 billion and eclipsing the previous US$11 billion record 17 years earlier, Thomson Reuters data showed.

The government's November divestment of health insurer Medibank Private Ltd, which raised A$5.7 billion (US$4.68 billion) in Asia's biggest listing in two years, and other healthcare sector listings contributed in a major way to boosting the IPO totals.

But the healthcare IPOs' stock market performance has been mixed. Medibank and hospital operator Healthscope Ltd, which raised US$6.8 billion between them in the two biggest listings of the year, are up 7 per cent and 19 per cent on their respective issue prices.

The sector, though, also produced the biggest flop. Aged care provider Estia, which had the year's fourth-largest listing and one of its last, saw its shares fall sharply on debut to be 20 percent under its issue price within a week amid complaints the offer was overpriced.

In another late-year disappointment, construction software firm Aconex, which raised A$140 million in one of the country's biggest listings of a firm yet to turn a profit, fell 10 per cent below its issue price within days of its December debut. "The market's shut for a period of time for anyone who thinks they can float anything," said Geoff Wilson, chairman of fund manager Wilson Asset Management. "It's going to be a tough economic time, so if you're going to the market it's got to be well priced and it's got to be a good quality business." On Tuesday, online clothes retailer SurfStitch Group was trading at A$0.965 on its stock market debut, compared with the A$1.00 IPO price.

Australia's stock market has fallen nearly 10 per cent from the year's high hit in August as the resources-driven economy has taken a heavy hit from tumbling iron ore, coal and oil prices owing to slowing demand from China.

Next year, among the biggest listings will be accounting software maker MYOB Ltd, which is expected to raise up to A$3 billion in the first quarter. But there aren't many other big listings on the cards, for now.

A big year for IPOs has meant large moves on the league table.

Macquarie retained its top billing, helping raise US$3.9 billion in 2014 against US$1.6 billion in the previous year and increasing its share of capital garnered to 27 per cent from 25 per cent.

The bank which raised the second most, Goldman Sachs Group , grew its IPO volume nearly five-fold while Deutsche Bank AG, which raised nothing in Australian IPOs in 2013, helped raise US$2.1 billion in 2014, placing it third. "There is still appetite for defensive sectors," said Deutsche Australia managing director of equity capital markets Hamish Whitehead, referring to the impact of falling commodities prices.

The chairman of Malaysian lender CIMB in Australia, Michael Crowley, said he still expects demand for listings "where the market's not concerned about the volatility of earnings or that they've been listed on high multiples". "The window has to some degree closed for product that's not of the best quality," said Crowley, whose firm helped raise the 9th most in IPOs for the year, $494 million, also from nothing in 2013.

REUTERS