Australia market sizzles as firms rush to float

Market on track for best year in decade, with amount raised so far from initial public offerings hitting a record, and larger deals are on the way

PUBLISHED : Tuesday, 03 June, 2014, 1:30am
UPDATED : Tuesday, 03 June, 2014, 1:30am

Australian businesses have set a record for money raised in initial share sales for the first five months of the year, with larger deals to come putting the country on track for its biggest initial public offering year since the privatisation of Telstra Corp began in 1997.

Companies have raised US$2.89 billion in stock flotations in the past 12 months, more than five times the amount generated in the previous corresponding period, according to Thomson Reuters.

That makes Australia a bright spot in the Asia-Pacific region generally, where dozens of deals have been cancelled or withdrawn amid volatile equity markets, unrest in Thailand and a cautious approach to approvals in China.

People keep looking for the next opportunity to invest in

Meanwhile, Australia's share market is trading at record highs, buoyed by historically low interest rates, and recently listed companies such as cleaning and catering firm Spotless Group, which raised A$995 million (HK$7.18 billion) last month, have posted strong after-market performances.

Analysts say this is encouraging vendors to go to the market as opposed to selling privately, particularly private equity firms which are looking to exit mature assets they have been holding through less favourable years.

"People keep having these good experiences, they keep looking for the next opportunity to invest in," said Andrew Stevens, a joint head of equity capital markets at UBS, which managed Australia's two biggest floats of the year so far - Spotless and Genworth Mortgage Insurance Australia.

Stevens is working on a possible float of Healthscope, a hospital owner and operator worth an estimated A$4 billion. It is owned by US private equity giants TPG Capital Management and Carlyle Group and they are expected to decide this month whether to sell through a float or privately.

Another float that could fetch A$4 billion is the planned sale of state-owned health insurer Medibank Private, due to list before the end of June next year.

If both proceed, this year will be the biggest for Australian initial public offerings since 1997.

John McLean, the head of capital markets origination at Citi, said that rather than being a bubble, the rush of listing activity was due to a cocktail of previously withheld supply and the quality of businesses that are on offer.

"I don't think it's too good to be true … We've had fairly subdued levels for a number of years, other than the second half of last year," McLean said, adding listing activity in broader Asia remained subdued "so Australia has become a bit of a highlight regionally".

The reopening this year of equity markets in mainland China after a 14-month hiatus and increased activity in Hong Kong are set to boost listings in the region, although initial expectations for a boom in Chinese offerings are being scaled back as regulators have been tentative about approvals.

Initial share sales in Singapore have had a slow start while in Thailand, where the military launched a coup last month, volumes have plunged in the year to date. In Australia, capital raised in new offerings so far this year is more than that raised in all of 2011 and 2012 combined.