insto - Australian financial markets

There are no surprises in Deloitte’s latest IPO survey, with a sharp drop in the number and value of floats recorded for the financial year ended 30 June 2009. However, the outlook is more positive than 12 months ago.

As our equity review notes, Australian equity markets have shown a strong preference for rights issues and placements in the last year, with billions of dollars raised. This sentiment will flow into the IPO world, suggests Deloitte corporate finance partner, Steve Woosnam.

"With the ASX now showing signs of recovery, it looks increasing likely that there will be demand for new issues. In particular, equity represents a viable source of funding as debt is still in scarce supply," says Woosnam.

Ben Potter, research analyst at IG Markets filed this report on Friday’s and the week’s equities markets action:

Following this morning’s weakness, the Australian market put on some strong gains during the afternoon session, closing the day higher. It’s impressive to see buyers willing to step into the market on a Friday afternoon.

The market was driven by strength among the property stocks, financials and materials stocks. The financials sector rallied close to 1.2 per cent in the last 2.5 hours of trade. There’s obviously some bullishness ahead of the US session tonight.

The truth-telling season is upon us, and companies that were getting in early with revised guidance announcements during the first full week of the new financial year include:

• Centrebet International said its full year result will be at the upper end of guidance given in April of $10 million to $11 million NPAT “on an adjusted basis” and between $7.5m and $8.5m on an actual basis (these terms were not defined in its ASX announcement).
• ABB Grain expects a slowdown in demand from Asian customers, and has lowered its full year NPAT guidance from a range of $53m to $63m down to $43m to $53m.
• Transpacific Industries Group, in the process of attracting a private equity fund as a cornerstone investor in a new capital raising, now expects its full year EBITDA to be 9 per cent less than last year, among a number of other adjustments (this is a result of imposed transparency following due diligence by the prospective major investor).

According to the league tables for M&A advisers maintained by mergers & acquisitions intelligence service mergermarket, the six months to 30 June 2009 represent the worst half year in six years by both value and volume.  The 3,873 announced deals in the first half of 2009were valued at US$709bn globally.

According to research by the mergers & acquisitions intelligence service mergermarket, a total of 293 deals worth A$62bn were announced in Australia for the 1 July 2008 to 30 June 2009 financial year. Some stats and comments from mergermarket:

Among the largest equity deals of the past week was the US$985m (A$1260m) raised from exisiting shareholders - a so-called follow-on offering - by Singapore-based Neptune Orient Lines.  This is just one of many such deals in the region. According to Thomson Reuters, for the year-to-date Singapore's follow-on volume totals US$7.8bn (A$10bn) from 20 issues, nearly 11 times higher than the same period in 2008 when volume was US$707.3 million and the highest year-to-date volume ever. 

In London mid-week, Rio Tinto received acceptances for almost 97 per cent of the 523 million shares offered, raising around US15bn (A$19bn) in one of the largest rights issues ever undertaken by any company. Within a day, Rio had received acceptances for almost 95 per cent of the 150 million shares offered to Australian investors in its 21 for 40 rights issue, raising another $4bn or so towards closing the $38bn hole in its balance sheet.

The new shares will commence normal trading on the Australian Securities Exchange on 10 July. After a brief trading halt on Friday 3 July, the underwriters Credit Suisse, JP Morgan and Macquarie announced they had “procured” purchasers for around 8 million Australian shares that had remained unsold in the Australian offer. Similarly, the UK underwriters announced the unsold shares from their part of the rights issue had been taken up.
 

Below are the highlights of the Asian equity capital markets (inc Australia), as outlined in the Thomson Reuters ECM review for the second quarter of 2009:

• Australian equity and equity-related volume in the first half of 2009 reached A$36.3 billion, an 85 per cent increase from same period last year. Rights offerings reached a record high of A$17.7 billion from 95 deals, capturing 48.8 per cent of the total Australian ECM volume in the first half of 2009. Wesfarmers, Santos and Stockland issued the largest rights offerings (although dwarfed by Rio’s offering, which nevertheless straddled the quarters and financial years, so technically excluded).
• Asian equity and equity-related (including Chinese A-shares) volume during the first half of 2009 totaled US$41.7 billion, a 31.9 per cent decline from the same period last year. Firms from China, Singapore, and South Korea were the most active issuers with a 70.3 per cent market share.
• Rights offerings reached a record high of US$9.8 billion from 94 deals, accounting for 23.4 per cent of total issuance in the first half of 2009. The top issuers were firms from Singapore, capturing 64.8 per cent of these rights offers followed by issuers from South Korea and Malaysia.

Figures released by Thomson Reuters show that Japanese investors have not been shy in snapping up new shares to shore up existing companies. For instance, the Sumitomo Mitsui Financial Group raised US$8.8 billion via a secondary offering this week, marking the biggest follow-on by a Japanese issuer since October 2000 when Nippon Telegraph and Telephone offered US$11.4 billion – which remains the largest ever financial sector issue in Japan. 

While ECM activity seems to be climbing in many developed markets, year-to-date M&A volume is US$843.4 billion, representing a 43 per cent decrease from the same period in 2008, according to Thomson Reuters.  Despite the fall, healthcare sector activity has weathered the storm.  While volume in this sector is largely bolstered by the first quarter's mega-deals, other noteworthy deals have trickled in.