COMPARED TO last year, it has been a flat one for transactional lawyers so far this year, with a combined capital raising of only a fraction of that raised by March 2005. But, say commentators, this is not a sign of things to come this year.
IPO activity dropped sharply in the first quarter of this year, according to the latest quarterly IPO Report by Deloitte Corporate Finance. The 22 IPOs had a combined capital raising of only $165 million this year, compared to 31 IPOs that raised $1.64 billion in the March 2005 quarter. However, the report shows, this was dramatically boosted by the $1 billion float of Babcock and Brown Capital.
In fact, said Steve Woosnam, Deloitte Corporate Finance partner, the first quarter of the calendar year is traditionally a period of lower activity in this area. But he acknowledged that this year has been particularly slow. “This year has been particularly quiet, but there are no fundamental factors — it’s simply a timing issue,” he said.
Timing played a significant role in the way the figures appear, he said. “For example, if the upcoming $1 billion IPO of Dyno Nobel had listed a fortnight earlier the figures for the March 06 quarter would have looked very different.”
Philippa Stone, corporate partner at Freehills, said the firm has not noticed a drop in IPO work this year, nor does it anticipate a slower year in this area. “We don’t perceive, looking at our pipelines, a drop in activity and indeed the reverse. What [Deloitte] identifies … is a difference in volume related to which side of the 31 March date transactions fall.”
The IPO market will strengthen through the year, according to Woosnam. Dyno Nobel and the anticipated mid-year IPO of Snowy Hydro, which is expected to raise up to $3 billion, are just examples of upcoming IPOs.
“These are part if a healthy pipeline of IPOs in the coming months, which is expected to culminate towards the end of 2006 with the record breaking Telstra 3 IPO,” he said.
Freehills partner Stone and Kristian Joyce, business development advisor at the firm, also acknowledged the potential effect of Telstra 3 on these figures. “Telstra 3 is on the horizon, which the government has announced may occur in the second half of this year. This will significantly change the perception level of activity for this year,” said Stone.
“The market is extremely healthy at the moment, a number of issuers are looking to take advantage of that by coming to market. The level of hybrid activity has also been particularly. There have been a number of hybrid transactions, including large ones such as Orica and CBA PERLS III and we have been involved in all of them as far as I am aware. We continue to be very busy on a number of hybrid and also IPO transactions,” said Stone.
In the past three months, 15 resource floats outnumbered 7 industrials, which highlights the influence of the commodity price boom on capital raising in Australia’s equity market, according to Deloitte Corporate Finance. It stated, as well, that gold, oil, gas and uranium IPOs were the main drivers of the increase in resource floats, which accounted for more than half of all IPOs in the March quarter this year.