Global gloom tempers raisings mood

09/01/2008 - 22:00

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Patersons Securities posted a record $1.26 billion dollars in capital raisings last year, up more than 50 per cent on the previous year and a result that has returned the Perth-based stockbroker to the top position for equity capital raisings during 2007.

Global gloom tempers raisings mood

Patersons Securities posted a record $1.26 billion dollars in capital raisings last year, up more than 50 per cent on the previous year and a result that has returned the Perth-based stockbroker to the top position for equity capital raisings during 2007.

For the first time last year, Euroz Securities knocked Patersons from the top position after raising $903 million in 2006, compared with $827 million raised by Patersons.

Euroz continued to perform well in 2007, eclipsing last year’s raisings by more than $30 million, to $937 million.

More than $6.4 billion was raised by Perth firms or for Perth-based companies during 2007.

But last year’s strong performance in capital markets has received a cautious response from many corporate finance and stockbroking players, who are predicting tougher times ahead on the back of increasing volatility in global equity markets in the wake of the US sub-prime crisis.

“The market climbs a wall of worry and there is plenty of worry around at the moment,” Euroz Securities executive chairman Peter Diamond said. “It’s not going to be as bad as the doomsayers might say, but it will be tricky. People will have to be on top of their game and certain sectors will be dangerous. Stocks with high debt levels will find it harder to raise money.”

Mr Diamond thinks there would be increased levels of mergers and acquisitions on the back of the increasing volatility.

Argonaut Group executive chairman Charles Fear agrees that there will be more corporate activity this year.

“You are going to see an emergence of transactions where people are forced to do things,” Mr Fear said.

Tony Barton, director Australian Heritage Group, reckons this year will be tough.

AHG was involved in a number of transactions last year, with one of its biggest a $30 million placement for CooperCo.

“I feel like someone has changed the music,” Mr Barton said. “It is going to be much more difficult.”

But Patersons head of corporate finance, Aaron Constantine, said while the market was more volatile he was “quietly confident” that the firm would deliver another strong year of capital raisings.

“A good deal that is appropriately priced and structured into a capable distribution network will still get done,” Mr Constantine said.

But he said the market had peaked in terms of initial public offerings.

“I think the market for resources will be more subdued,” he said.

The strength of the small to mid cap resources market helped boost the fortunes of a number of Perth’s smaller broking houses, including relative newcomers to the Perth stockbroking scene, Indian Ocean Capital and Stripe Capital.

Indian Ocean Capital was involved in 10 deals that raised $69 million, including acting as lead manager for the $12 million Vector Resources IPO, which delivered an 85 per cent return to investors last year.

CK Locke & Partners was involved in raising $65 million in equity, up from $12 million in 2007.

Of note for CK Locke was the relatively small $2.2 million DMC Resources IPO, which turned out to be one of the year’s fifth best performing offering by delivering a 365 per cent return to investors.

While broking firms manage most of the capital raisings, corporate advisory firms such as Azure Capital are also active in the sector.

Azure was involved in 15 capital raisings last year, which included acting for Coogee Resources in one of the state’s bigger equity raisings – a $270 million investment in Coogee by Babcock & Brown.

During 2007, a growing number of WA firms turned their back on the local market to raise funds in Canada via Toronto Stock Exchange listings.

One of the more recent to look to Toronto was Perseus Mining Ltd, which launched a $58 million capital raising in December ahead of a TSX listing.

Many local market analysts have likened the move to the buzz surrounding London’s Alternative Investment Market, which led to many Perth companies seeking listings in a bid to tap in to the deep pockets of the UK fund mangers.

Many companies have since found liquidity and left the board.

Mr Diamond said that, unless companies had a broker championing their cause in both Canada and Australia, the move would be difficult.

“A lot of the guys that have gone over there have been really disappointed,” Mr Diamond said.

“I think it is a fool’s paradise. One in five may be successful and the other four are a waste of time. We have done some raisings for some companies that have decided to go and do that and they’ve come back to Australia.”

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