MARKETS SPECTATOR: Mysterious market volumes

A third of the way through 2013 and share sales are at anemic levels. In 2013, IPOs, secondary share sales, capital raisings and block trades may struggle to match last year’s total of $19.67 billion let alone the $77.45 billion in 2009, according to Thomson Reuters. That’s odd when the S&P/ASX 200 Index has gained 17 per cent in the last 12 months.

Bankers say because M&A activity is mooted, $19.46 billion between January 1 and May 1, Australian companies have not needed the stock market to raise funds. Companies have cut their debt. The collapse of Lehman Brothers and the meltdown in financial markets in 2008 taught them that reducing their gearing was wise. There is thus little need for corporate Australia to raise equity to reduce leverage. Companies in the mining sector have seen their share prices pummeled and are understandably reluctant to argue their case again in front of equity investors.

From January 1 to May 1 total share sale volumes in Australia were $7.43 billion, according to Thomson Reuters. Still, that is up from $6.47 billion in the same period last year. And there are signs that 2013 may get better. Fund managers are being asked out to dinner by bankers and companies eager to raise money through an initial public offering. Bankers say private equity-backed companies, family run businesses and founders of companies who are consumer oriented may be the ones to attempt equity sales.

New Zealand may prove to be an unlikely source of deals. The government is embarking on the most significant sale of state assets in a decade beginning with individual share subscriptions to the $NZ1.92 billion IPO of Mighty River Power due to close this week. Across the Tasman, bankers say there may be more block trades. In March UBS, the number one equity capital markets investment bank in Australia since 2006, sold $663.7 million worth of stock in Westfield Retail Trust for the Lowy family.

UBS co-head of capital market Australia, Dane FitzGibbon, says “Investor sentiment is very positive across most sectors of the market, however given limited M&A related funding and the fact that corporate balance sheets are generally in good shape, the volume of follow-on equity raisings has been light so far this year.

“Offsetting this, we have seen a number of significant secondary blocks being executed on tight terms, and there is a reasonable pipeline of IPO candidates.”