01/12/2008 - 14:33

IPO activity to pick up late next year

01/12/2008 - 14:33

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It has been a dismal 2008 for company floats with initial public offer activity of non-resource stocks in Western Australia raising only 20 per cent of that achieved last year, a study has found.

It has been a dismal 2008 for company floats with initial public offer activity of non-resource stocks in Western Australia raising only 20 per cent of that achieved last year, a study has found.

The PricewaterhouseCoopers 11 month year-to-date float analysis showed only 10 WA companies raising a total of $106 million, listed on the local market, down from the 14 firms that floated last year that raised $551 million.

Of the 10 WA companies that listed, 57 per cent of the capital raised came from investment company Ozgrowth, which raised $60 million in its IPO. The other nine firms raised around $5 million on average.

PwC head of corporate finance in Perth Angel Barrio said the "only consolation was that the rest of the nation raised only 10 per cent of what it did in the same period last year".

Nationally, 24 IPOs raising $796 million were completed over the period, compared to 68 raising $7.8 billion in the corresponding period in 2007.

"The high proportion of floats from WA shows that, until recently, investor confidence and appetite for risk remained high in WA relative to the nation," Mr Barrio said.

"However, the fact that this year has only had one listing of significance compared to the four of last year, and the lack of any non-resource WA listings since 30 June shows that the turmoil on global financial markets has finally reached WA."

WA companies listed at an average premium of around 1 per cent, beating the national average discount of some 4 per cent.

However WA's results are well below the previous year's premium of 8 per cent.

Additionally, the value of WA listings have declined by an average 62.8 per cent, below the national average decrease of 55.3 per cent.

Soil Sub Technologies was the worst performer of the WA IPOs, plunging 90.5 per cent since listing.

"While there are obviously more companies than ever requiring equity funds due to tight debt markets, and there is plenty of capital out there, the market is not working properly as investors are sitting out of it waiting for prices to bottom out and companies are holding on as long as they can for improved conditions," Mr Barrio said.

"Those in desperate need of funds or with excellent businesses are seeking innovative financing solutions and alternative sources of capital.

"Certainly, our experience is that more and more companies are requesting us to explore transactions of this nature before considering an IPO."

PwC partner Greg Keys said IPO activity in the first half of 2009 was expected to be quiet but would pick up later.

"Increased activity in the second half of 2009 should be boosted by pending falls in interest rates, together with some fiscal stimulation from the government, both of which will provide a much-needed stimulus to the economy and equity markets," Mr Keys said.

Investors were keen to see companies reduce debt and re-capitalisations to that end were likely to attract support.

"Accordingly, we expect the Australian equity market to stabilise during mid to late 2009 with a consequent re-emergence of activity, particularly for listings with sound fundamentals...," Mr Keys said.

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