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End of slump for IPOs

INTERNATIONAL uncertainty and low interest rates resulted in a sharp drop-off in Australian float activity in 2001, but it will pick up in the coming year.

Australian floats fell 72 per cent during the 2001 calendar year compared to the previous year, with only 40 new companies, property trusts and investment funds listing on the Australian Stock Exchange – the lowest number of floats in five years.

A PricewaterhouseCoopers annual survey of sharemarket floats released last week revealed weak domestic and global economic conditions, the re-percussions of September 11, and relatively cheap borrowing costs all contributed to the third-lowest year in a decade for new listings.

PricewaterhouseCoopers corporate finance and investment banking partner Greg Keys said the technology sector had also remained off the boil.

“The end of the technology boom has left a considerable gap in the domestic initial public offer market in terms of the number of listings,” Mr Keys said.

While the technology sector is floundering, the health and biotechnology sector is up, being the main ASX industry sector with seven floats during the year.

Total funds raised during 2001 were also down by 59 per cent, from $3.6 billon to $1.5 billion.

The survey found that the attractiveness for floats had also fallen, with the listing premiums continuing to decline significantly.

Conversely, float costs increased and, due to the market volatility, stockbroking firms were less willing to underwrite new floats.

But the signs are already emerging that the stockmarket will do better in 2002. Most market analysts are bullish about the prospects of raising funds, with many now advising clients seeking an IPO to jump in and take advantage of the changing investor sentiment – a turnaround from the position stockbrokers held during the two months following the September 11 terrorist attacks.

A rush of resource stocks has been the main driver, buoyed by a major resource discovery by Minotaur Resources near WMC’s Olympic Dam project in South Australia.

Mr Keys is predicting a recovery will take shape over the second half of 2002.

The recent robust performance of the All Industrials Index, the strengthening of the global economy and greater turnover and liquidity in the markets are all a cause for a stronger performance in the coming year.

“2002 has opened in a different climate. Consolidation in key market sectors should create considerable demand for potential floats and a favourable environment for IPOs,” he said.

“However, the level of activity is still likely to be well below the peaks of 1999 and 2000.”

WA resource companies are heading the charge, with Cooper Energy NL set to be the next company off the rank, with a $10 million float set for March 12. Havilah Resources NL is expecting to list on March 21, while April listings will be led by Galaxy Resources Ltd and Central Queensland Resources Ltd.

Rubber recycling and manufacturing firm Reclaim Industries Ltd and Home Building Society both listed in the past two weeks with strong interest shown from investors.

But while the stockmarket has returned to favour among investors, much depends on how well the international economy and its demand for our resource exports holds up.

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