Drop in confidence puts brakes on IPOs

THE initial public offer market had a good start to the year, but cautious investor sentiment has slowed the run of new floats.

During the March quarter, seven Western Australian companies listed on the Australian Securities Exchange, all in the resources exploration sector, after raising a total of $49 million.

Five of the seven companies that listed closed at a premium to their issue price, with Doray Minerals receiving a huge last-minute boost from positive drill results at its WA gold project.

Compared to the December quarter, the number of floats halved, while the amount raised fell 54 per cent from $106 million.

The drop has, in part, been affected by the summer holidays where it is harder to market an IPO, however market confidence was more of a determining factor, as evidenced by the S&P/ASX 200 index.

During the December quarter, the benchmark index gained close to 6 per cent while in the March quarter it was relatively flat after the market recovered falls in January and February in March.

The market knockdown earlier this year caused several IPOs to be pulled, with some of the country’s larger resource floats – Q Copper, Blackcrest Resources and New World Energy – withdrawing their float plans.

Mobilarm and Scandinavian Resources also pulled their IPOs, but their float ambitions are close to fruition with both companies planning to list on the local bourse this quarter.

KPMG corporate finance partner Adrian Arundell said the current sluggish IPO market was due to people waiting to see how the stock market performs.

“We’re just in that window of time where people are waiting to see whether we go up from here and keep the trend going up or is there another blip coming,” he said.

“However, people are generally expecting it to go up.”

Based on that sentiment, Mr Arundell said some companies may be holding back on their IPO plans until the first quarter of the 2011 financial year.

“We’ll be closer to the 5,000 mark of the S&P/ASX 200 index and that in itself might be just a psychological threshold that needs to be reached before people start being a bit more bullish,” he said.

“At the moment there’s a little bit of uncertainty as to which ones are going to make the grade and which ones aren’t.”

Mr Arundell believes the withdrawal of the Q Copper float has not affected other companies’ plans, saying that people are currently looking forward rather than looking at past failures.