The IPO hit trouble when the close of the institutional bookbuilding coincided with the release of the countryÆs worst inflation figures in five years.
The prospect of higher interest rates meant that domestic institutions were more cautious when placing orders for Emeco shares, setting a price of A$1.90 per share compared to the range of A$2.10 and A$2.50 stated in the prospectus.
At the end of the two-day bookbuild on Wednesday there was speculation that not enough orders had been received from local buyers to fully cover the deal.
But overnight, joint lead managers Citigroup, Credit Suisse and UBS reconfirmed interest from overseas institutions at the new price and filled the book.
The lower than expected proceeds of A$944 million ($714 million) will be disappointing to the private equity owners of Emeco who bought the company just over 18 months ago. Pacific Equity Partners (PEP) and Archer Capital will get about A$560 million from the sale compared to A$780 million that would have flowed through had the deal priced at the high end.
Emeco itself gets A$381 million of net proceeds to pay off debt and cover the cost of the transaction.
Arrangers say the deal was running smoothly until Wednesday when the Reserve Bank released figures showing the countryÆs headline inflation rate had risen to 4%, above the central bankÆs target of between 2% and 3%. The S&P/ASX 200 index dropped 57 points on the news as investors assumed that a higher interest rate environment would translate to softer equity markets in the medium term.
Emeco has done well on the back of AustraliaÆs mining boom and high global commodity prices. The company makes the bulk of its revenues by renting heavy machinery to the mining industry and has international operations in Europe, the US, Indonesia and Canada.
PEP and Archer Capital (then GS Private Equity) bought the business in December 2004 from Darr Equipment, a privately held US forklift operator, for between A$400 million and A$500 million.
The A$1.90 price tag on its shares values Emeco at 16.3 times forecast 2007 earnings û in line with the PE ratio of comparable company Coates Hire which trades at 15.7x earnings.
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