By Jackie Range
Australia and New Zealand's initial public offering market is set to return to levels not seen since the global financial crisis almost killed it stone-dead, with listings expected to rise five-fold this year compared to 2012.
Bankers say successful recent deals, attractive company valuations and upbeat earnings seasons are contributing to a surge in IPOs on both sides of the Tasman Sea, offering new opportunities for investors and underwriters in an otherwise bleak period for Asian listings.
"The market's at a good level for people to do deals, to sell new companies, and it's also at a level where investors are looking for value," says Campbell Lobb, Credit Suisse vice-chairman of investment banking in Australia.
IPOs worth $8.9 billion are expected in Australia and New Zealand this year, from a mere $1.6 billion last year and at the highest level since 2005 when the market swallowed deals worth $11.8 billion, according to Thomson Reuters data.
IPO volumes for the Asia-Pacific region, by comparison, have tumbled 32 percent so far this year to $18.7 billion, thanks mostly to a steep decline in Malaysian offerings and the lack of deals in mainland China where regulators have frozen approvals.
Relatively high market valuations in Australia and New Zealand, meanwhile, are giving vendors room to offer assets at competitive prices while ensuring a good return on their investments. Australia's benchmark S&P/ASX 200 index is trading at a price earnings multiple of 16.77 times and New Zealand's NZX 50 index is at 17.55 times, compared with the Hang Seng in Hong Kong at 9.99 times.
Australia's S&P/ASX 200 is trading near five-year highs, while the NZX 50 has risen close to record territory. Investors in both countries are hunting for value.
New Zealand's IPO market is the standout, driven by government privatisations as it seeks to restore its budget surplus.
May's NZ$1.7 billion ($1.3 billion) Mighty River Power Ltd IPO will be followed in November with Meridian Energy Ltd, which could raise some NZ$3.2 billion in what would be the country's largest IPO. Those sales have been supplemented by petrol retailer Z Energy Ltd, making 2013 a record year for IPOs in the country.
Meridian is seen as offering international investors a play on the nation's robust economy. But given its size, it is also expected to be priced at a discount to attract investors, since big initial public offerings can be priced a bit more cheaply to entice enough investors. That could make it difficult for other offerings to compete, market watchers say.
In Australia, deals like in-vitro fertilisation business Virtus Health Ltd, which has seen its share price jump 19.2 percent since listing on June 11, have whetted investors' appetite for new stocks.
Among the deals in the pipeline, Australian media and entertainment company Nine Entertainment Co Pty Ltd is expected to raise around $1.1 billion and online foreign exchange provider OzForex around $540 million. Nine Entertainment and OzForex declined to comment.
Eyes on fed, China
Even so, analysts warn the desire for new issues may wane given predictions of market turbulence if the Federal Reserve eases off on its stimulus programme in the coming months. Slower-than-expected growth in China, Australia's biggest trading partner, also could throw a spanner in the works.
"You will start to find that liquidity that's in the market, which is what an IPO needs, will start to dry up," says Evan Lucas, a Melbourne-based market strategist at financial spread betting company IG. "The company that is coming online has to be incredibly enticing to actually, therefore, win out."
Underscoring the risks, diversified funds manager Centuria Capital Ltd scrapped its planned listing of the Centuria Property Trust last month due to insufficient demand.
Nonetheless, bankers predict more deals to come, including credit checking company Veda Group and insurer Genworth Financial Inc's Australian enterprise. The Veda Group declined to comment.
Genworth has said it was targeting the fourth quarter of 2013 or later for an IPO of up to 40 percent of its Australian mortgage insurance business. The company postponed a planned Australian IPO in May 2012 after a loss in the first quarter of that year.
Australia continues to encourage international investment
By Robert Ishak and Leonora Roccisano
What is the Significant Investor Visa?
The Significant Investor Visa is a new stream within Australia’s Business Innovation and Investment visas (Sub-class 188 and 888). The Visa was formed to provide an avenue for migrant investors to come into Australia. The Visa commenced on Nov. 24, 2012.
To be eligible for the Visa, an applicant must meet certain requirements, including making an investment of at least AUD $5,000,000 into complying investments.
What are “complying investments” for the purposes of the Visa?
There are three categories of complying investments and they include government bonds, direct investments into Australian proprietary companies, and ASIC-regulated managed funds with a mandate for investing in eligible asset classes in Australia.
What are the latest changes to the Visa?
The eligible assets of complying managed funds classes were seen as too narrow. As a result of consultation with various stakeholders such as the Financial Services Council, the eligible asset classes were broadened to include, for example, bonds or term deposits issued by Australian financial institutions and loans secured by mortgages over the investments that form the other eligible asset classes, as well as real property in Australia through a fund.
When does this change take effect?
The change takes effect from Nov. 23, 2013. Fund managers should ensure that they complete the correct compliance declaration Form 1413 from Nov. 23, 2013.
Ishak is co-founder and chairman of William Roberts Lawyers, while Roccisano is a Singapore-based commercial litigator with the firm.
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