The final quarter of 2013 is shaping up to be a mammoth one for the IPO market, with yet another company seeming likely to test the appetite of investors. So why the sudden turnaround in sentiment? Elsewhere, there’s a further dampener on the prospect of a bid for Oz Minerals, Qantas nears a sale of its Brisbane Airport terminal lease and private equity continues to reveal an interest in Australia’s aged care sector.
Ask any investment banker or lawyer in Australia what the IPO market has been like since the GFC and they’ll tell you it’s been ‘tough’ – or perhaps more colourful words to that effect. But after the tide began turning ever so slowly earlier this year, the dams finally appeared to burst around a month ago.
Since then we have had news of possible mammoth listings of Twitter, Chrysler, Hilton Worldwide and Alibaba Group in the US. In Australia, meanwhile, we have the joint listing of New Zealand’s Meridian Energy on the horizon as well as Nine Entertainment, OzForex, Veda, APN Property Group, Dick Smith, McAleese, Redcape, Spotless Group and BIS Industries.
The latest to join the throng is plastics and metal parts manufacturer EGR Group, according to the Australian Financial Review. The Brisbane-based automotive and construction sector supplier has more than 1000 employees worldwide and celebrated its 40th year of operation this year.
So what has caused the flood – one so sudden that what was tracking as one of the worst IPO markets in a decade now could end up as one of the best?
A pick-up in global sentiment and particularly US economic data has been crucial, but the recovery in Facebook’s share price should not be overlooked.
Facebook was the most anticipated IPO for some time when it chose to list in May last year, but the float was bungled. It left a bitter taste in most investors’ mouths, one that didn’t leave as the share price drifted toward half the IPO price. But in August the company’s stock hit and then comfortably cleared the level reached on listing, and since then the IPO market has sprung to life and M&A activity is also threatening to ignite.
Add to this the successful floats of Virtus Health and Steadfast in Australia this year (we won’t mention iSelect), and you have a market ripe to be tested as a new government takes charge. And with as much as $6 billion in floats potentially ahead in the December quarter, it will be severely tested unless market conditions worsen and force the slated floats to the backburner.
Speaking of the IPO market, league tables for the year to the end of September were released by Bloomberg yesterday with Macquarie Bank at the summit of both the IPO and M&A lists.
Oz Minerals, Glencore Xstrata
Despite weekend reports that Glencore Xstrata had quietly collected a 10 per cent shareholding in copper miner Oz Minerals, we are still none the wiser as to the truth behind the story.
As we discussed yesterday, an unlikely move on Oz was rumoured to be made by the Swiss giant – but if true, the Australian miner knows little about it.
Speculators pushed Oz Minerals’ stock up as much as 7 per cent in the first hour of trading on Monday before the gains slowly whittled away. An official response in regard to the rumours was called for by the ASX and Oz duly delivered this just after 1100 AEST.
“In response to a query from ASX with respect to recent media speculation on Glencore acquiring OZ Minerals' shares, the company advises it has not received a substantial shareholder notice from Glencore nor has OZ Minerals been approached by Glencore in regard to any proposal,” a brief company statement advised.
From there the pullback grew legs, with the company’s stock limping to a gain of just 0.5 per cent by the end of the day. That was against a benchmark fall of more than 1.5 per cent, so there was at least a semblance of life in the speculation by the end of the trading day.
What investors failed to realise was that the Oz media release largely meant nothing, and was no more than a statement highlighting that the management team was not breaching its continuous disclosure duties. In truth, if Glencore was planning a surprise swoop on Oz, it’s highly unlikely to have spoken to them beforehand.
As such, until Glencore discusses the reports, the rumour lives.
Qantas Airways, Brisbane Airport
Qantas Airways is nearing a deal for the early return of its Brisbane Airport lease, according to the AFR.
The national carrier has been looking to pay off debt through the sale of non-core assets, with the possible sale of airport leases coming on the back of the divestment of its defence business for $80 million back in August.
According to the latest report, Qantas could receive just shy of $100 million for a return of its terminal lease back to Brisbane Airport. Talks are reportedly progressing well and a deal is expected to be reached there prior to any similar sales in Sydney, Melbourne and Perth.
Qantas first flagged the four terminal lease sales, due to expire in 2018 and 2019, back in March, when it was reported that it could recoup as much as $1 billion and have deals reached within a year. Chief executive Alan Joyce has warned, however, that a Sydney deal in particular would be “very complex”.
The airline has also used funds raised from non-core asset divestments on a share buyback program in the order of $100 million.
Quadrant, Estia, Virtus Health
Private equity group Quadrant is on the verge of acquiring a Melbourne-based aged care operator for $175 million, according to the AFR, in the second major private equity swoop on aged care facilities this year.
Estia Health, which operates 10 facilities in and around Melbourne, is slated to be the first of several acquisitions of aged care companies for Quadrant, with future buys likely to go under the Estia name, according to the report.
The buyout follows Lend Lease’s sale of its aged care business in March to Archer Capital for $270 million.
Quadrant was in the news earlier in the year when it sold its 46.5 per cent stake in the nation’s largest fertility business, Virtus Health, via an IPO – the largest seen in Australia so far in 2013.
From fertility care straight to aged care; things clearly move quickly at Quadrant.
Indeed, perhaps too quickly, with Quadrant likely watching on enviously at the almost 50 per cent lift in Virtus’ share price since listing. Still, no use shedding tears as the company still made a very tidy profit from the sale.
Based on previous form we can expect a listing of Estia in around three to five years’ time.
Origin Energy has sold €800 million in bonds ($1.2 billion) to refinance its debt. The company is looking to take advantage of current low interest rates as it works through a heavy debt load in relation to the mammoth Australia-Pacific LNG joint venture.
Also paying down debt was drilling services firm Boart Longyear, which completed a $US300 million ($321 million) secured notes offering. The size of its revolving credit facility has now been reduced from $US450 million to $US140 million.
Elsewhere, Stockland has sold a property in Sydney’s north-west for $72 million to CoVal. The price was in line with book value and made on behalf of wholesale investors.
Guinness Peat Group, meanwhile, has exited its 33.6 per cent stake in insurer Tower Limited for $NZ118.3 million ($104.8 million). The main buyers were institutional investors.
In other news, business intelligence provider EurotaxGlass is mulling a sale of its Australian operations – Glass’s Australia – according to The Wall Street Journal. If sold at a price to earnings ratio of 10 times, the company could expect to receive around $30 million for the Australian automotive information services provider.
And finally, new communications minister Malcolm Turnbull has said Australia Post would not be privatised, according to The Australian, while fellow Coalition member Warren Truss also expects air traffic control operator Air Services Australia to remain in government hands. Should a commission of audit recommend privatisation, it might get a little tense in the party room.