Markets: Digging for an IPO

The head of Australia’s top bourse says mining explorers need a tax boost to revive the IPO market.

Elmer Funke Kupper reckons he may have found a way to bolster equity capital markets.

The ASX chief executive is urging the government to consider an exploration tax credit for miners. This would breathe fresh life into the initial public offering and secondary share sale markets.

Funke Kupper says resource companies have traditionally driven the IPO market. Now the mining industry is “under significant pressure,” he says. Lower commodity prices and rising production costs have deterred investors.

“It could be quite a productive investment,” Funke Kupper told Markets Spectator.

“I like the idea,” he said of the exploration tax credit.

In the year to June 30 the ASX says there were 82 IPOs, down from 99 in the previous 12 months.  The value of secondary capital raisings dropped 10 per cent to $36.5 billion.

Of the $350 billion of IPO and secondary share sales raised on ASX over the last five and half years, about $48 billion, or 14 per cent, has been raised by the metals and mining sector, excluding energy companies.

For the non-IPO market to pick up, Funke Kupper says more merger and acquisition activity needs to occur together with a revival in mining and risk appetite.

ASX’s listings revenue was up 3 per cent to $113.2 million in the 2013 financial year.

Australia’s dominant stock exchange has introduced capital raising flexibility for small cap stocks, allowing companies to clinch shareholder approval to raise capital in the year ahead at each annual meeting.

Funke says the ASX is allocating $2 million to brokers in 2014 to encourage analysts to cover smaller companies and generate investor interest.