Eyes on value as capital raisings slide

14/01/2009 - 22:00

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A TALE of two halves is the most apt description of capital raisings last year, with the fall-off in the latter part of the year meaning investors are likely to be more selective in 2009.

Eyes on value as capital raisings slide

A TALE of two halves is the most apt description of capital raisings last year, with the fall-off in the latter part of the year meaning investors are likely to be more selective in 2009.

The first half of 2008 was dominated by large capital raisings, with Wesfarmers appointing six stockbrokers to handle its $2.57 billion pro-rata entitlement offer to refinance its Coles acquisition.

The brokers included ABN Amro, Deutsche Bank, Goldman Sachs JBWere and JP Morgan.

Also in the first half of the year were Paladin Energy's $325 million convertible bond issue, Iluka's $353 million entitlement offer, and Aquarius Platinum's $366 million placement.

In the second half, the most notable secondary raisings were Resolute Mining's $60 million convertible note placement and AusQuest's $26 million placement with both taking place towards the end of the year.

"I think 2008 was a tale of two halves, where the first half there was significant interest and take up of capital raisings and clearly the second half was a totally different story," Azure Capital managing director Michael Minosora told WA Business News.

The tussle between Euroz Securities and Patersons Securities continued in 2008, with the former claiming the top spot out of the WA-based stockbrokers in terms of value.

However, the amount of capital raised by both companies was substantially lower than the previous year.

In 2007, Euroz raised $937 million from 30 transactions while Paterson's clinched top spot with $1.26 billion raised from 94 deals.

Euroz executive chairman Peter Diamond expects the tough secondary raising market to continue in 2009, with a number of equity raisings to take place "but nothing substantial".

"I think the big end of town such as the banks, that's effectively where the majority of raisings will be in the next six months, and then it will work its way down to the mid-tier and smaller companies," Mr Diamond said.

"I'm expecting pretty tough conditions for the next six months and most likely the 12 months will be pretty tough as well."

He added it was too early to say whether the equity market was bottoming out and starting to recover.

Mr Minosora said investors would be more discerning in 2009 with regard to capital raisings, however there would be more interest in general.

"I think people are looking at participating in capital raisings where value is obvious and with the re-pricing of a lot of stocks, the value can now be found in cases which may have been different previously," he said.

With many companies restructuring their operations and assets in a bid to conserve cash, Mr Minosora said companies that could prove their business's sustainability would be able to access capital more easily.

With the market taking a tumble in 2008 - the All Ordinaries and S&P/ASX 200 indices dropped 42 per cent over the year - Mr Diamond said the terms of capital raisings would have to change.

"Capital raisings will have to be very generous to attract people who want to put equity into companies," he said.

"But on the other side, if interest rates go down ... then you might see a bit of market trading for those better companies that are still making profits, chasing yields, so that might attract some capital."

There had been some improvement in investor sentiment during recent weeks, Mr Diamond said, although it would take some time to return to the "euphoric" highs reached previously.

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