UPDATE: Oceania Healthcare climbs 3.8% in NZX debt

Friday 5th May 2017

Funds raised by Oceania Healthcare will be used to develop its existing land bank but the company is open to new sites down the track, both in New Zealand and potentially in Australia, its chief executive said after its shares debuted at 82 cents, 3.8 percent higher than the offer price of 79 cents in the NZX's first listing of the year.

“We were expecting to see a bit of a lift given the demand and the fact that we had to scale back the allocations quite significantly during the book-build process. It's good to see the buy orders coming in," chief executive Earl Gasparich told BusinessDesk.

Oceania Healthcare raised $200 million through an initial public offering last month and listed today on the New Zealand and Australian stock exchanges under the ticker OCA. It issued 253.2 million new shares under the offer, which equates to 41.5 percent of the total shares in the company at listing. The shares recently traded at 81 cents.

James Snell, First NZ Capital institutional equities director, said it was "pleasing" to see another new IPO trading well, both in volume and price. He said the stock may have dipped slightly as some investors - who bought at 79 cents - opted to take some profits, but he expects to see longer term investors coming back in on the buy side.

Oceania Healthcare's Gasparich said the capital raising will allow the company to build out its current pipeline. The company has enough land on its 50 existing sites to build another 1,700 beds and units over the next seven-to-eight years. Given that some beds and units will also be decommissioned it expects to have 5,211 beds and units within that time period, up from the current 3,950.

“This capital raising we have done will enable us to continue the build out of that pipeline, commence some of our larger villages in Auckland as well as some great sites we have in Hamilton, Nelson, Tauranga and Christchurch,” he said.

The company would look to replenish its land bank at some point over the seven-to-eight-year horizon and would also be open to new brownfield or greenfield acquisitions should the opportunity arise in the near term, he said.

Longer term, it could turn to Australia. Gasparich noted there is a looming shortage of aged care beds in New Zealand and Oceania Healthcare is well positioned to take advantage of that. “We have a lot on our plate over the next decade but certainly in the longer term we would be willing to look into Australia,” he said.

The company doesn't need further capital for its current plans. However, "business plans can change day to day and opportunities can arise," he said. "If an opportunity arises that we believe has the potential to create longer term shareholder value we would come back to our investors if need be but there's nothing on the table right now that would require us to do that."

According to Gasparich, about 73 percent of the company's total product is in aged care while the balance is in retirement village units. The focus on care has a number of benefits in terms of steady cash flow and government funding. "It is very robust and is almost a social infrastructure type asset," he said. Aged care, which includes facilities for people with dementia and other issues, is for when "an elderly person's needs increase to the extent they need full-time care," he said.

Gasparich said a recent move by the government to lift the pay of aged and residential care workers "was a fantastic outcome." Last month the government announced a pay equity deal for aged and residential care workers worth $2.05 billion of extra pay for some 55,000 people – close to 2 percent of the total New Zealand workforce. "It's long overdue that the government recognise that pay rates in the sector are low," he said.

Gasparich said it had no impact on Oceania Healthcare's finances as the government is contributing the extra funds but would have positive benefits as it will make it possible to attract and retain staff. Regarding possible tension with people who fall outside of the deal, such as registered nurses, he said he expects that issue to be addressed by the government over the coming years.

(BusinessDesk)

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