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Australian IPO market on tenterhooks after deals pulled
[SYDNEY] Two failed Australian floats in two weeks - including one touted as the country's biggest of the year - have jacked up the pressure on planned listings, with fund managers sceptical that hoped-for valuations will come to pass.
Bankers are working on new listings for at least four private equity-owned companies hoping to raise a combined A$2 billion (S$1.87 billion), people familiar with the deals said.
The first will be South-east Asian online realtor PropertyGuru, backed by TPG Capital and KKR & Co, which prices shares worth up to A$380 million on Tuesday and Wednesday.
The list includes Onsite Rental, which hires out industrial equipment and is backed by a number of hedge funds, Bain Capital's Retail Zoo which owns the Boost Juice drink chain as well as Pepper Home Loans, a mortgage lender that KKR acquired in 2017, the people said.
"These IPOs (initial public offering) are trying to cash in on high equity market valuations at the moment and sadly investors are just not ready to pay such multiples for new businesses," said Liu Jun Bei, a portfolio manager at Tribeca Investment Partners.
Of the four, Ms Liu said she only plans to take a look at Retail Zoo and any investment would be very much subject to pricing.
Recent history does not bode well.
Consumer lender Latitude Financial's planned A$1 billion IPO - its second attempt at a listing in just over a year - was pulled by KKR and its partners after the offer failed to attract sufficient strategic investors with its pricing.
A float for MPC Kinetic, a coal seam gas services firm, also fell through after buyers could not be found at desired prices. And in September, GFG Alliance halted a planned A$1 billion listing of parts of its Australian Liberty Steel unit until at least next year due to market volatility.
Not super confident
Companies raised just US$416 million from IPOs in the year to end-September - the lowest amount for same period since 2012, according to Refinitiv data. That's despite a 17.7 per cent jump for the stock market this year on record low interest rates.
"It would be nice to have a little bit more of confidence in relation to some of these IPOs going through," said a banker involved in some of the deals. The person was not authorised to speak to media and declined to be identified.
The banker noted, however, the market had had a recent success this month with property group Home Consortium Ltd which raised A$325 million.
Fund managers noted a weak domestic economy and signs of a potential global recession have also hit investor sentiment. In the United States too, fund managers are waiting out high-profile unicorn IPOs after string of flops while Europe has seen four cancellations this month.
Anton Tagliaferro, investment director at Investors Mutual Limited, does not plan to invest in the four upcoming IPOs, saying they did not look like they would yield strong growth or offer attractive pricing.
Karl Siegling, managing director at Cadence Asset Management, added that given current market uncertainty: "If you have the choice of buying into an IPO or not spending your money right now, you probably take the option of sitting on your money especially when it comes to the smaller end of the market."
PropertyGuru and Pepper declined to comment. Retail Zoo and Onsite Rental representatives did not return requests for comment.
KKR and TPG are seeking to price PropertyGuru shares at up to 10.8 times 2020 earnings. Australia's REA Group Ltd which competes with PropertyGuru in Singapore but has a much bigger operation, trades at 38.8 times, Refinitiv data shows.
By comparison, Latitude first tried to list at 13.9 times 2020 earnings, only to cut that to 11 times - still above an average multiple of 10.6 for competitor FlexiGroup Limited - before pulling the deal.
A second banker involved in some of the deals said the flush state of Australian pension funds' coffers will help drive demand. The government estimates the funds have some A$245 billion to invest.
"There is plenty of money trying to find opportunities and investors are going to scrutinise every IPO on its merits," said the banker.