15/01/2010 - 00:00

Bounce-back leads to cautious optimism for year ahead

15/01/2010 - 00:00

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THE number of capital raisings undertaken in calendar 2009 was unexpected in light of the global turmoil of the previous year, however questions loom over the sustainability for 2010.

Bounce-back leads to cautious optimism for year ahead

THE number of capital raisings undertaken in calendar 2009 was unexpected in light of the global turmoil of the previous year, however questions loom over the sustainability for 2010.

When looking back at capital raisings that were carried out last year, the words that most often came to the minds of people in the stockbroking sector were ‘surprise’ and ‘happy’.

Most had expected 2009 to be a tough year considering the conditions of late 2008, when major local stock market indices dropped 42 per cent.

Fast forward to the end of 2009 and the All Ordinaries and S&P/ASX 200 indices nearly reversed the previous year’s losses with gains of 33.4 per cent and 30.8 per cent respectively, a testament to investor confidence.

That confidence was translated to the amount of secondary capital raised by listed Western Australian companies, which raised a total of $14.8 billion from nearly 650 transactions as announced on the Australian Securities Exchange.

However, comparisons should not be drawn with the previous year, according to those in the stockbroking sector.

“I don’t think you can compare the two years,” DJ Carmichael and Co managing director Ian Dorrington said.

“Last year you had markets recovering, in many cases at a faster rate that many thought would have happen; you’ve also had confidence levels increasing and as a result you had people seeing share prices at values which seem to be almost too good to be true.

“That was a very different environment compared to the year before when the world was in the process of falling apart.

“I think everyone was very, very surprised at the amount of raisings that took place [in 2009], whether it was at the big end or the smaller end of the market.”

It’s a sentiment shared by Euroz Securities executive chairman Peter Diamond.

“I think it wasn’t, in terms of previous bull market years, as prolific as that, but I thought it was generally fairly active in a reasonably responsive market,” he said.

The year was kick-started with Wesfarmers’ $4.7 billion placement and rights issue, which was the state’s largest capital raising and boosted the March quarter as the highest capital raising period with a total of $6.5 billion from about 110 transactions.

The following two quarters each raised about $2 billion, however the number of raisings was higher with about 185 in the June quarter and 195 in the September quarter.

The year also ended with bang, albeit slightly smaller than in the beginning, with Woodside Petroleum announcing a $2.5 billion rights issue last month, pushing the amount raised to $4.3 billion from 150 announced raisings for the December quarter.

The traditional tussle between Euroz Securities and Patersons Securities continued throughout 2009, with a recent book-runner league table by Thomson Reuters placing Patersons as the top stockbroker in Perth.

According to Thomson Reuters, Patersons raised $1.05 billion in 131 transactions, up from $314 million in 34 transactions the previous year. It ranked 11th among all stockbroking firms in Australia, up one place from the previous year.

The second-ranked Perth broker was Euroz, which raised $329 million in 20 transactions. In 2008, Euroz had raised more money with $356 million in 14 transactions, which ranked it as Perth’s leading broker that year.

However, after stripping the eligibility requirements for the league table, Patersons said it had raised a total of $1.16 billion in calendar 2009 while Euroz raised a total of $904 million.

The newest stock broking firm in Perth, Blackswan Equities, which opened its doors in May, raised $75 million. The city’s oldest firm, DJ Carmichael, which ramped up its capital raising efforts this year, raised $46 million.

Perth brokerages Argonaut Securities raised a total of $691.5 million, Hartleys raised $350 million as lead manager, State One Stockbroking raised $100.3 million as either lead or joint lead manager, and CPS Securities raised a total of $101.8 million.

Nationally, Macquarie Capital Advisers said it raised $29.7 billion as either lead or joint-lead managers. The firm helped manage the Wesfarmers and Rio Tinto raisings.

Last year has been often referred to as the buyers’ market, with investors setting the price for how raisings should be priced.

“Because the market was down so much and companies needed capital, the raisings were generally at good prices for long-term investors,” Mr Diamond said.

“And then the market climbed, so that speaks for itself, so people generally had a good time of things with good performances by companies.”

But the balance of power between investors and companies is starting to shift, according to Mr Dorrington.

“The balance of power was strongly in the hands of the investor last year,” he said.

“However I think it’s starting to shift back towards equilibrium, but I don’t think we’re there yet.”

Looking ahead, stockbrokers are cautiously optimistic about what lies ahead in 2010 in relation to capital raisings.

Stockbrokers contacted by WA Business News believe last year’s pace will start to subside as the economy gradually improves and pressure from banks on companies starts to ease.

Mr Diamond believes momentum for raisings in the resources and services sectors will continue through the year, which will place Western Australia in a good position.

Meanwhile, Mr Dorrington said the need for companies to raise secondary capital would not be as urgent, although there would still be tremendous opportunities for investors.

“I think [capital raisings] are still going to be at historically high levels but I don’t think it will be at an extremely high level that we saw last year,” he said.

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