Fickle market forces shift in strategy

PATERSONS Securities and Macquarie Capital Advisers have topped WA Business News’ survey of Western Australian capital raisings, with each firm involved in transactions worth just over $1 billion.

The survey found that the major stockbrokers in Perth managed nearly $5 billion of capital raisings in the year to June 2010, with Euroz Securities, Argonaut Capital, Azure Capital and Hartleys making big contributions to the total (see table).

The broking firms have reported that the debt-driven capital raisings of the global financial crisis, designed to repair balance sheets, are largely behind them.

The majority of investor support has been for existing listed companies with established projects and a strong management structure.

Yet the volatility has meant some companies have looked to foreign investment or been compelled to significantly discount their capital raisings.

Max Capital managing director Tony King said Port Bouvard had been a good indicator of the state of the market.

The debt-laden property developer utilised multiple options to cover its planned $60 million raising, including $23 million from Queensland’s FKP Property Group and a rights issue.

Max Capital is corporate adviser to the transactions, which has been jointly managed by Euroz and Macquarie.

“It’s definitely been a difficult 12 months; certainly since February-March,” Mr King said. “Port Bouvard ended up taking three months longer than everyone thought.”

He said the uncertain market conditions had been particularly bad for Australian-based assets, leading to companies effectively asking existing investors to “step up to the plate and finance” future growth.

“What’s happened in the past 12-24 months is that a lot of companies have replaced debt with equity

“And that’s where you saw all these big rights issues and property companies such as Port Bouvard recapitalising,” Mr King said.

He said it would be interesting to see how companies refinanced their projects and whether debt was available to tap into.

“Having offshore assets has been pretty advantageous since the release of the Henry Review earlier this year,” Mr King said.

With local markets tight, many companies have turned to China.

Gindalbie Metals, for instance, turned to its Chinese joint venture partner, steel producer Ansteel, for a big part of its recent capital raising.

The backing of Ansteel also allowed their Karara joint venture to secure a $US1.2 billion loan to finance the project’s development.

Industry participants said investment in companies that were heading towards production, like Gindalbie, was where the market needed to be.

Hartleys head of corporate finance Grey Egerton-Warburton confirmed that more companies had been raising capital for acquisitions and exploration during the past fiscal year.

“During the GFC many capital raisings were done to rectify balance sheets and at times that didn’t necessarily suit the companies,” he said. “But the market conditions were so bad and some companies were caught short.”

Mr Egerton-Warburton said companies had been able to be more selective about when they went to market, raising capital for acquisitions and/or new mines rather than debt reduction.

But there are still clear signs the market is tough, especially for companies outside of the resource sector.

Marine technology developer Mobilarm scrapped its initial plans for a public share offer in January and is battling to complete its second attempt.

Its current offer is seeking to raise $4 million, yet the company has twice had to extend its deadline.

Mobilarm said in a statement that that while investor interest had been strong, Europe’s debt crisis and the proposed RSPT meant the market was too volatile for it to list.

On the whole, Perth brokers said the mining sector looked strong, as well as the industrial sector, provided the RSPT issue was resolved in due course.

However, a number of firms have reported steady growth in the past year, with Argonaut, Euroz and Hartleys adding to their teams.

Azure Capital appeared to be the frontrunner, declaring a 60 per cent increase in the number of corporate finance staff