WA Business News’ inaugural survey of Western Australian equity capital markets has highlighted the dominance of a handful of stockbroking firms. Mark Beyer looks at the market in 2002 and its prospects for 2003.
WESTERN Australian companies raised more than $950 million of new equity during 2002.
Just four stockbroking firms – JBWere, Paterson Ord Minnett, Hartleys and Euroz Securities – accounted for more than two thirds of the total.
National broking firm JBWere raised the most money for WA companies, but its contribution came from one large deal – a $300 million institutional capital raising for Foodland Associated.
Based on the number of transactions and dollars raised, Perth-based Paterson Ord Minnett can lay claim to being the market leader in WA.
Paterson participated in 35 transactions – including five Initial Public Offerings (IPOs) - that raised a total of $185 million
Hartleys and Euroz Securities participated in transactions that raised about $105 million but the profile of their transactions was very different, with Euroz targeting larger transactions for its institutional clients.
Macquarie Financial Services was a significant player, participating in five transactions that raised $75 million.
It was followed by five firms that participated in transactions worth $32-$35 million, including Perth-based brokers DJ Carmichael and Terrain Securities.
Many local brokers bemoaned the generally quiet conditions, particularly in the second half of the year, and they see little prospect of a pick-up.
The market leaders are noticeably more upbeat.
“Based on the number of deals we have in the pipeline, this year will be bigger than last year,” Paterson chairman Michael Manford said.
He also signalled that Paterson would be looking closely at expanding into Sydney, following last year’s opening of a Melbourne office.
“We are very keen to make that happen but we need to make sure we get the right people,” Mr Manford said.
Hartleys’ corporate finance director Richard Simpson has tipped a “very strong” junior resource market in 2003, helped by the strength of the gold price.
He expects increased takeover activity and new floats in the resource sector, in contrast to the mid-tier industrial market, which will continue to experience tough trading.
Euroz Securities is also preparing for increased corporate finance activity in 2003, with the recent recruitment of two experienced executives – Karl Paganin and Doug Young – to establish a stand-alone corporate finance unit (see story here).
The small number of underwritten deals was a feature of 2002. Paterson, for instance, was underwriter for just six transactions, while Hartleys was underwriter for just two.
This partly reflected corporate law changes, which have increased underwriters’ legal responsibilities.
It also reflected the increased preference for placements, which in most cases can be executed quickly, as opposed to rights issues, which are more protracted and therefore are often underwritten.
Shareholder purchase plans grew in popularity. SPPs enable listed companies to raise funds from existing retail shareholders without having to prepare a prospectus.
Perth brokers faced competition from a broad range of interstate brokers during the past year – although this trend was reversed in a few cases, with local brokers managing capital raisings for resource companies based in other States.
There also was a substantial number of capital raisings – both IPOs and placements – completed without the formal involvement of broking firms (see story here).
These trends all conspired to squeeze the income of most broking firms, which also had to contend with reduced trading volumes in their core private client business.
Paterson Ord Minnett managed five IPOs last year, for Repcol (joint lead manager with Hartleys), Home Building Society, Alliance Finance, Jetset Travelworld and MPI Mines.
Paterson also managed placements and rights issues for a range of industrial, resources and technology companies.
The New Year is off to a busy start for Paterson. It has been appointed lead manager and underwriter of Mt Gibson Iron’s $11.3 million rights issue and manager of Majestic Resources’ $14.3 million debt/equity raising.
Euroz participated in a relatively small number of transactions in 2002 (nine for the year) but their average size was much larger.
It has a strong institutional focus, seeking to service institutional investors wanting exposure to ‘mid cap’ WA stocks.
Hartleys’ corporate finance team had a busy year in 2002, despite the company incurring big financial losses and seeing the departure of some of its best-known dealers.
The company’s corporate finance director, Richard Simpson, said the vast majority of its transactions were in
small to mid-cap resource stocks.
He believes Hartleys was a major beneficiary of the 2001 exit of rival broking firm CIBC, which was traditionally a major player in the resource sector.
Hartleys was also helped by its major shareholder Royal Bank of Canada, which underwrote three international capital raisings for St Barbara Mines. Hartleys acted as placement manager for each of these transactions.
Hartleys participated in just one IPO, for debt collection company Repcol, in which it was joint lead manager with Paterson.
Macquarie was involved in five transactions that raised a total of $76 million. Like all broking firms, Macquarie chases the big transactions.
However, it also handled a $4.9 million placement for Schaffer Corporation, indicating that it is prepared to handle relatively small transactions for mid-cap stocks.
Several WA-based companies bypassed Perth brokers and went straight to Sydney or Melbourne to raise capital.
For instance, Burswood appointed two Sydney-based firms – ABN Amro Rothschild and Caliburn Partnership – as manager and adviser respectively for its $35 million placement in October.
Burswood’s Julie Cameron said an important consideration in the selection of ABN Amro Rothschild was its strong international links, particularly within Asia.
Kagara Zinc is another Perth-based company to bypass local brokers, appointing Sydney-based Southern Cross Equities to manage three separate capital raisings worth $34 million last year.
Kagara chairman Kim Robinson said the selection was based on Southern Cross Equities’ “demonstrated ability to raise funds in a difficult climate. “They have good contacts, especially among the institutions,” he said.
Other Perth-based firms that bypassed the local brokers included Bounty Oil & Gas and De Grey Mining, which appointed Melbourne-based Intersuisse as manager of their IPOs.
Hire Intelligence appointed another Melbourne-based broker, Falkiners, as manager of its $10.8 million IPO.