Zinifex debut confirms IPO glut fears

With 31 IPOs completed in the March quarter, equity investors in Australia may have had their fill.

While the pipeline indicates that Australia's equity markets are poised to break full year IPO records by the end of June, investors may have had their fill of handsomely priced floats.

Zinifex, the second big company to list in under a week, disappointed investors by closing at A$1.83 on its first day of trading Monday, 12 cents off the price paid by institutional investors for shares in the zinc group. The poor performance gave Zinifex a market capitalization of A$915 million, well below the A$1.35 billion target set when the IPO was announced earlier in the year.

Apparel maker Pacific Brands faired better when it hit the boards last Friday, trading up to A$2.62 before finishing the day at A$2.59 on an issue price of A$2.50. It has since settled around the issue price.

Putting timing and capacity issues aside, the two companies offered investors very different prospects. Pacific Brands sells 200 million pieces of clothing in Australia each year which equates to eight pieces per person and manufactures some of the biggest brands in the country. Zinifex, on the other hand, is the new name for the failed lead and zinc producer Pasminco. Brokers on the issue were hoping to convince investors that the company's old smelters and mines had strong growth potential due to rising global metal prices.

Zinifex's reception may have placed doubts in the minds of executives at Excel Coal and Just Group, two more high-profile companies scheduled to list in coming weeks. Investors have had their pick of IPOs this year with 31 new listings raising a total of A$587 million in the first quarter to March.

These numbers, released by Deloitte Corporate Finance, are a sharp contrast with activity a year earlier when, under the threat of the Iraq war, only eight companies listed in the March quarter raising A$52 million.

"With more than 30 companies already lining up to go public in the June quarter, the market is within sight of the annual record of 154 IPOs set at the height of the dotcom boom in 1999-2000," says Ian Thatcher, head of Deloitte Corporate Finance in Australia.

But this point will only be reached if investor appetite continues. Investors have done well from recent listings, making an average return from all IPOs in the quarter of 29%. Thatcher says the best performance has come from Hibernia Gold (up 370%), followed by Signature Brands (up 190%) and Piquant Blue (up 90%).

Though these numbers are tempered by other statistics. "These three companies raised a total of A$5.5 million, so the huge gains in the share prices have been enjoyed by a select few." He says only 17 of the 29 IPOs to list in the quarter were trading above issue price.

It is now evident that Pacific Brands may have issued into a closing window of opportunity. Being the first of two mega-floats was certainly an advantage for the deal's joint lead arrangers, UBS and Macquarie Bank. "Timing is everything with these deals," said Guy Fowler, managing director of investment banking at UBS, at the time of the Pacific Brands' listing. "There are still quite a few IPOs to come and if these don't fair well it won't be because the valuation matrix has moved but probably because investor appetite will change."

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