IPOs float on a tide of cash

by Nick Stride

Thursday 8th April 2004

The sharebroking industry is enjoying the best weather it has had for many years, with a solid pipeline of floats on the horizon, strong trading activity, and a spate of capital repayments putting money in investors' pockets.

Of the initial public offerings announced so far the biggest is Feltex, which will be jointly managed by Forsyth Barr and First New Zealand Capital and will raise an estimated $300 million for its private capital owners.

Pumpkin Patch, with Goldman Sachs JB Were at the helm, is expected to raise $100 million in mid-year.

Milford Asset Management is seeking about $50 million for a listed fund with the assistance of sharebroker Jon Cimino's new operation.

And Forsyth Barr is raising $8 million in an IPO of mobile communications company TeamTalk

Like oil and gas reserves, after the proven come the "probable" and the "possible."

Heading the probable list is a float of CanWest's New Zealand television and radio assets, with a possible price tag of $600 million. The list also includes a float to raise cash for New Zealand Oil & Gas's $50 million development of the Pike River coal field and a $7 million to $10 million IPO of Mike Pero Mortgages, for which Greenslades is slated to be the lead manager.

Salvus Asset Management is investigating floating a listed fund a la Kingfish and Milford. IT and consulting group Infinity has said it may list on the AX market, property syndicate roll-up St Laurence Group is looking at an NZX or AX listing later this year, and Opus International, the former Ministry of Works, is investigating raising capital and listing "within the next couple of years."

Two retirement village and aged care operations are also on the probable list. Guardian Healthcare has confirmed plans to list within the next 12 months. The much smaller Vision Senior Living plans to list in the next two years.

Of the possibles, the best bets look to be Guinness Peat Group subsidiary Turners & Growers, which last year put float plans on hold, and Stirling Sports, which has expressed an interest in an AX listing.

Among other possibles are two relative giants. Power and gas lines giant Vector is tipped to raise between $500 million and $1 billion, although how soon that might happen is unclear.

ANZ Bank has flagged the possibility of a partial float of ANZ New Zealand and National Bank. It has said a decision will be made by 2006.

Woosh Wireless, funded by an assortment of high-profile investors, is a possibility in the next couple of years, as is small domestic airline Origin Pacific.

According to First New Zealand Capital, announced or likely near-term equity capital raising will put a demand of about $1 billion on the market, neatly matched by the amount of cash going back into Kiwi investors' pockets from companies returning capital.

The biggest capital return has been by NGC Holdings, which cancelled $525 million of shares, paying out $1.58 a share.

Next comes Carter Holt Harvey, paying out $400 million of the proceeds of the sale of its tissues division half of that, however, goes to majority owner International Paper.

Independent Newspapers is similarly paying out $340 million from the sale of its newspaper division, with half going to News Corporation.

Tenon is paying out $349 million from the sale of its forests but not all will be in cash; some will be in the form of a share cancellation.

The Fisher & Paykel companies are both returning capital; Appliances, $140 million by way of a special dividend and share buyback, and Healthcare through a $27.5 million buyback.

So is the New Zealand market mirroring Australia where, according to fund managers quoted recently in the Sydney Morning Herald, the flood of IPOs signals an overheated market?

Local sharebroking bosses think not. Scott St John, managing director of First NZ Capital, thinks the IPO pipeline is a result of a number of factors.

One is the growing maturity of the private equity industry, which is seeing a growing number of solid companies come to market as their temporary owners seek to cash up and reinvest further down the risk curve.

A second is "the considerable efforts of the New Zealand Exchange's marketing, and that of the investment banks," to get companies that need capital to use the capital markets to raise it.

Another trend Mr St John sees is for companies that need liquidity for an already large shareholder base to look to list.

"The market's enthusiasm for well-structured product will continue," he reckons.

Mr St John doesn't see the recent trend of companies to return capital to their shareholders as an indication boards have run short of opportunities.

At a recent investment conference in Asia, he says, presenting companies' views on capital intensity how to do more, with less shareholder capital "really rang a chord with investors."

"You have to keep up your return on equity. If a good opportunity comes up, and you're a sharp operator, the market will support you Fletcher Building is a good example."

Forsyth Barr managing director Neil Paviour-Smith says the times, while good, don't feel like a bull market.

"Clearly we're in an expansive phase in terms of the economy and company earnings. But we're still in an environment where interest rates are relatively low, and investors are sitting on significant amounts of cash.

"In addition to that, there's been a scarcity of new equity in the past couple of years. There's a backlog of cash, and no competition for that cash."

The best of the recent floats, such as Freightways and Promina, have sharpened investors' appetities for new issues. But not all have gone so well.

The times, while good, don't feel like a bull market

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