Western Australian companies raised a record $3 billion in new equity issues in 2005, underpinning a second boom year for local broking firms Patersons Securities and Euroz Securities.
Western Australian companies raised a record $3 billion in new equity issues in 2005, underpinning a second boom year for local broking firms Patersons Securities and Euroz Securities.
The total value of WA capital raisings was up from $2.4 billion in 2004 and $2.3 billion in 2003, according to WA Business News’ annual survey.
Patersons completed 75 transactions and raised a total of $766 million, both up a little from the previous year, while Euroz completed 22 transactions and raised a total of $362 million.
But size isn’t everything.
The fast-growing Patersons hit its first big speed bump last month after uncovering trading losses and compliance problems at its Canberra office, which it opened last year.
In contrast, Euroz has just reported another big increase in earnings, with net profit up 30 per cent for the half-year to December.
Patersons also attracts critics, who assert that the firm is too busy chasing growth and has sacrificed quality.
Critics point to its underperforming transactions, such as the Westralian Gas and Power float and the Bass Strait Oil placement, both of which are down about 50 per cent from their issue price.
Executive chairman Michael Manford defends the firm’s track record, saying clients are happy with the opportunities presented by the firm.
“Relative to the large number of capital raisings, in general there would be an extremely successful track record,” he said.
Euroz executive chairman Peter Diamdond said he was pleased with last year’s performance even though the total value of capital raisings fell by 15 per cent.
He said the firm was doing more of the large transactions on its own and was also picking up more corporate advisory work.
Despite the growth of Patersons and Euroz, the big capital raisings in WA are still handled by national and international investment banks such as UBS and Macquarie.
UBS managed the largest WA capital raising in 2005 – the $925 million initial public offering of Alinta Infrastructure Holdings, which holds a portfolio of energy asssets previously acquired by Alinta.
The IPO was a success, enabling Alinta to earn a large capital gain from the sale of its energy assets into the new company.
The $2 shares have traded as high as $2.42 but are currently just below the issue price, just like the two big infrastructure floats completed in December, spAusnet and Spark Infrastructure Group.
The Alinta Infrastructure IPO was large enough to put UBS at the top of the WA league table.
The last time UBS was in that position was in 2003, when it managed the $900 million float of Multiplex, which has suffered a plummeting share price after hitting major problems with its Wembley stadium project in London.
Macquarie Bank has traditionally managed Alinta’s capital raisings but was unable to handle the Alinta Infrastructure IPO.
However, Macquarie did maintain its close relationship with Great Southern Plantations, which raised a total of $264 million last year through a placement of ordinary shares and an issue of convertible notes.
Macquarie’s other WA transactions included the $21.5 million float of Little World Beverages – the company behind Little Creatures beer – which it jointly managed with local firm Azure Capital.
Hartleys, which in its heyday in the 1990s was Perth’s pre-eminent broking firm, consolidated its position in 2005.
It managed 22 transactions and raised a total of $158 million, putting it below the market leaders but well ahead of other local firms.
Competition for local broking houses also comes from interstate and international firms, such as RBC Capital Markets, Shaw Stockbroking and Tricom Equities.
Canadian firm RBC participated in three substantial capital raisings for WA companies, including a $77 million private placement by market favourite Paladin Resources, which is developing a uranium project in Namibia.
RBC also managed capital raisings by Murchison Metals and Dragon Mining, and in each case its role was to introduce international investors to the share register of these companies.
Sydney firm Shaw Stockbroking managed five capital raisings for WA companies, including a $23 million placement for Amadeus Energy and the float of Amadeus subsidiary Australian Renewable Fuels.
Tricom Equities’ biggest WA deal was the $61 million float of Incremental Petroleum, an oil and gas explorer headed by former Woodside executive Chris Cronin.
Other interstate brokers managing capital raisings for WA companies include Wilson HTM, Southern Cross, Cartesian Capital and KTM Capital.
Bell Potter Securities, which operates nationally and has an office in Perth, handled three substantial WA transactions last year, with the biggest being its role as underwriter and lead manager for Automotive Holdings Group’s $45 million IPO.
Locally, Azure Capital continued to play an active role as both an adviser and a manager of capital raisings for WA companies.
Its major transactions in 2005 included the Little World Beverages and Phylogica IPOs and placements for Focus Minerals, Australian Wine Holdings and unlisted company Arafura Pearls.
It advised Paladin Resources on its capital raisings and has been an adviser to Consolidated Minerals and Home Building Society on takeover activity.
Other local broking houses with a substantial presence were DJ Carmichael, whose biggest client during the year was Elixir Petroleum, and Montagu Stockbrokers, which managed capital raising for Precious Metals Australia, Abra Mining, Vital Metals and others.
However, the local scene was dominated for the second year running by Patersons and Euroz.
Patersons’ capital raising activity was widely spread by companies and by sector. Its biggest transaction, completed 12 months ago, was the $83 million IPO of LinQ Resources Fund.
Its biggest client was Abacus Property Group, which raised a total of $95 million through two placements.
Patersons raised $80 million for another fast-growing property company, Aspen Group, via three transactions.
Other big transactions included a $58 million placement and rights issue for mining and engineering contractor Macmahon Holdings (jointly managed with Wilson HTM), a $52 million placement for Integrated Tree Cropping, a $34 million capital raising for iron ore explorer Midwest Corporation, and a $30 million capital raising for struggling technology company ERG.
The majority of Patersons’ capital raisings were for WA companies, despite its national expansion, though Mr Manford said he was pleased with the amount of work coming out of its Sydney and Melbourne offices. He said the firm would continue to handle small $1 million to $2 million capital raisings, despite its increased size.
Euroz’s biggest transaction last year was an underwritten $85 million placement for Internet services company iiNet, but unfortunately this has proved to be a poor performer.
The placement, to fund the acquisition of OzEmail, was at $3.05 per share and the shares spent much of the year above that level, but they are now trading around $1.80.
A much better performer was its $76.8 million placement for Sydney-based Beach Petroleum at 64 cents per share. Beach is now trading at about $1.05 per share, near its highs for the year.
Other significant transactions included placements for Anvil Mining ($28 million), Equigold ($26 million), Gallery Gold ($22 million), and OM Holdings ($21 million).
The annual review of capital raising activity shows that most WA companies opted for placements of ordinary shares, which are seen as the most cost effective and time efficient way to raise money.
