Reprise of 2009 raisings unlikely this year

TAPPING the equity market for funds during the March quarter was a more subdued affair compared to the major raisings that took place last year.

It was a quiet start to the year for secondary equity raisings after a relatively frantic period in the previous quarter, when improving market sentiment prompted investors to part with cash for existing businesses and new ventures.

Sentiment predominately dictated the flow of capital raisings with market confidence wavering during January and February, before recovering in March, when capital raisings started to pick up again.

In the three months to the end of March 2010, a total of $2.3 billion was sought by listed companies in Western Australia, nearly half the amount sought in the December quarter.

The billion dollar raisings were notably absent, keeping the March 2010 quarter roughly on par with the June and September quarters of last year.

The multi-billion dollar raisings by Wesfarmers and Woodside Petroleum last year helped to boost the amount raised in the March and December quarters.

Patersons Securities head of corporate finance, Aaron Constantine, said he did not expect the larger capital raisings from last year to be repeated any time soon as the bigger end of town had recapitalised itself.

“The difficulties that Australia’s top companies found themselves in with respect to their providers in 2009 created a bonanza opportunity for global investment banks, which did really well out of fees,” he said.

‘‘Now that the big end of the market has recapitalised itself, maybe we’re in for a period of more subdued capital raisings.”

However the number of smaller to mid-tier companies chasing equity has not slowed down with at least 150 raisings taking place in the quarter, about the same as the previous quarter.

“I think it’ll be a year of ebbs and flows; March was quite good, January was quite vacant,” Mr Constantine said.

In January, 39 capital raising issues were launched, climbing to 48 in February and 64 in March.

Companies chasing equity in the March quarter were predominately looking to boost working capital; proof, Mr Constantine says, of the large amount of exploration companies residing in the state.

It also signalled the end of companies chasing funds to fix their balance sheets, he said, adding that those businesses that raised larger amounts of capital were not likely to return to the market soon.

The knockdown of sentiment during the March quarter also caused investors to be picky over which company to place funds with.

“For the good things, people are prepared to chip in, but generally most of the shareholders of most companies are pretty happy for companies to concentrate on existing businesses and actually make them work and generate cash flow from that,” Euroz Securities chairman Peter Diamond said.

He added that merger and acquisition activity levels could start picking up as more companies found themselves in reasonable financial shape.

“Maybe the next quarter and later in the year you might see a bit more activity in that (M&A) space but there’s still a lot of caution around because there are some headwinds out there still, such as higher interest rates,” Mr Diamond said.

During the March quarter, Atlas Iron unveiled friendly merger plans with Aurox Resources, Mineral Resources launched a takeover for Mesa Minerals, which has recommended the offer, and CBH Resources fielded two takeover bids from two of its shareholders.

“On the positive side, our economy’s in a reasonable shape, companies are generally in a reasonable shape but whether they’re going to go out and spend their cash and be aggressive, that’s yet to be seen,” Mr Diamond said.

“There’s been a lot of capital raisings in the past 12 months; capital raisings now to acquire new businesses, that’s possibly going to start picking up a little bit but it needs to be quite a good deal for the equity market to fund it.”

During the March quarter, Wesfarmers announced the largest raising, tapping overseas debt markets to raise $737 million through a bond issue.

The inaugural issue of the bonds was under the company’s euro medium-term note program, established in late 2008. Funds from the raising will be used to repay existing shorter-term borrowings.

While Global Iron announced the largest equity raising, that is under a cloud following the Australian Securities Exchange’s decision this week to block its deal with a Frank Timis-controlled company.

The raising was a condition of acquiring African Petroleum Corporation, which holds oil and gas exploration blocks in Liberia.

Another raising of note is the $55 million placement and rights issue by Ark Fund, which will merge with managed investment scheme player Rewards Group.

Rewards Group had proposed a $28 million initial public offer, however market jitters had forced that plan to be pulled.