THE controversial float of rail-freight company QR National - the biggest in Australia since Telstra - finished its first day at a substantial premium to its issue price, dispelling fears of a horror debut.
The better-than-expected first day of trading in QR National shares was also interpreted as signalling the start of a new wave of floats after volatile equity markets curtailed earlier plans.
After a highly politicised and controversial investor roadshow, QR National hit the boards yesterday at $2.54 - a 1? a share discount to the issue price - before surging by as much as 5 per cent within less than an hour. The stock rose to $2.65, representing a 4 per cent gain on the issue price for institutional investors.
The first day's trading was even better for retail investors, who enjoyed a paper gain of 8 per cent. They paid $2.45 for stock after receiving a discount to institutions.
More than 476 million shares changed hands - representing almost 30 per cent of the allocated stock - which traders described as "extraordinarily strong". Institutional investors who are underweight in QR National are also expected to "act as a cushion" for the share price in the short term.
A London activist hedge fund - the Children's Investment Fund Management - emerged as the second-biggest shareholder in QR National after the Queensland government, with a 6.1 per cent stake. Another British fund, First State Investments, is the third-largest with 5.1 per cent.
Children's Investment Fund is a major investor in other railroad companies and has earned a reputation for flexing its muscle, most recently at wind-power company Infigen Energy, where it forced a board reshuffle.
The listing was seen as an important test for the float market after the construction company Valemus pulled the pin on its $1.3 billion offer in July. Myer is still trading below last year's issue price.
The German owners of Valemus plan to attempt another float of the civil construction company early next year, while other planned floats include PBL Media.
"There is absolutely no doubt that it has given a fair bit of confidence to the IPO market," an Austock analyst, Andrew Chambers, said. "If things had gone bad there would be a lot of questions over whether the IPO market was dead. But you would have to say more people would now be tempted to do IPOs."
Investors will be keeping an eye on whether the float's stabilisation manager, Goldman Sachs, will be forced to use a mechanism - known as a greenshoe option - of buying back a further 6 per cent of QR National stock over the next 30 days in order to stabilise a volatile share price.
The bankers did not have to resort to using that mechanism yesterday.
"I'd just wait until the greenshoe [mechanism] has disappeared as an issue," Charlie Green, a director at the Hunter Green Institutional Broking, said
Mr Green said investors remained concerned about the Queensland government retaining "de facto control" of QR National, citing the Future Fund's stoush with Telstra as a case in point.
But QR National's chief executive, Lance Hockridge, insisted the government would not be "exercising control over the company". "Our focus is very clear ... it is to deliver on and exceed all of the promises that we have made in the offer documentation," he said.
QR National has been sold to investors as a growth stock with promises that its pretax earnings would rise by 75 per cent over the next two years.
Frequently Asked Questions about this Article…
How did QR National shares perform on their IPO debut?
QR National opened trading at $2.54, briefly surged by as much as 5% within an hour and reached $2.65 (about a 4% gain on the issue price for institutional investors). Retail investors, who paid $2.45 after a discount, enjoyed an approximate 8% paper gain on day one.
What did the first-day trading volume tell investors about demand for the QR National IPO?
More than 476 million QR National shares changed hands on the first day — almost 30% of the allocated stock — which market participants described as an 'extraordinarily strong' turnover and a sign of solid demand.
Who are the major shareholders in QR National after the float?
The Queensland government remained the largest shareholder. The London activist hedge fund Children's Investment Fund Management became the second-biggest holder with a 6.1% stake, and First State Investments was the third-largest with about 5.1%.
What is a greenshoe option and was it used in the QR National listing?
A greenshoe option allows stabilisation managers to buy back up to an additional 6% of stock within 30 days to support the share price. Goldman Sachs was the stabilisation manager for QR National, but they did not need to use the greenshoe on the first day.
Did the QR National float change confidence in the wider IPO market?
Yes. Analysts said the better-than-expected debut gave confidence to the IPO market after earlier high-profile pullbacks, and could encourage other planned floats such as those by Valemus and PBL Media to proceed.
Are there investor concerns about the Queensland government’s role in QR National?
Some investors remain worried the Queensland government could retain 'de facto control' of QR National. QR National's CEO Lance Hockridge responded by saying the government would not be exercising control and the company would focus on delivering on its offer commitments.
How was QR National pitched to investors — growth or income stock?
QR National was sold to investors as a growth stock, with management promising pretax earnings would rise by about 75% over the next two years.
What influence might activist shareholders like Children’s Investment Fund have on QR National?
Children’s Investment Fund Management has a reputation for actively engaging in companies where it invests and holds a sizeable 6.1% stake in QR National, so its presence suggests the potential for activist involvement or pressure on corporate strategy if the fund chooses to flex its influence.
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