Expectations of a record year for initial public offer (IPO) activity have fizzled, amid high sharemarket volatility, poor performances from several floats, and more trade sales.
The withdrawal of the $1.3 billion Valemus float this week - easily the biggest IPO so far in 2010 - was another setback.
Predictions abounded in January that the IPO market was on track to raise more than $10 billion, even as much as $15 billion depending on which investment banker estimates were used.
The record amount raised last decade was $15.2 billion from 169 floats in 2005. About $3 billion was raised last year - $2.2 million from Myer's float alone - and $2 billion in 2008.
This year's IPO market has been more sluggish than many observers had anticipated. Twenty-seven companies have listed so far in 2010. Most have been small, speculative minerals explorers.
The combined market capitalisation of these companies upon listing was about $1.7 billion. A third of that came from the listing of maritime vessel operator Miclyn Express Offshore.
The median loss from this year's listings is 5 per cent, a reasonable result given the second-quarter sharemarket correction. But only six of 27 IPOs are trading above their issue price. Nine companies have fallen more than 20 per cent below their issue price in a matter of months.
The poor post-listing performance of many floats is weighing on sentiment towards new issues.
A bigger problem is higher market volatility, the enemy of IPO activity. Why buy into floats of lesser-known companies when better value is emerging in established companies?
Many smaller companies are finding it harder to raise their minimum subscriptions and close offers as a shaky market dulls investor sentiment.
A weakening retail environment is also weighing on IPO activity. Several planned IPOs this year were from private equity groups exiting investments in retail companies via floats.
Mooted IPOs, such as that for Rebel Sport, were shelved last year or earlier this year. Interest rate rises, weaker consumer sentiment, the expiration of government stimulus, and Myer's share price fall (down about 20 per cent from the issue price) has made it hard to list retailers at the right price.
The re-emergence of trade sales is another factor dampening IPO activity. More vendors that planned to sell assets via floats are using trade sales to sell assets to other companies or investors. Large trade sales were less common in 2009 due to the cost and availability of debt after the financial crisis.
All is not lost for IPOs in 2010, however.
The controversial $4 billion float of Queensland Rail's coal and freight assets is still likely late this year - though this could change if the Queensland state government accepts a trade offer.
A successful listing for QR National would push capital raised through floats this year above $5 billion - an okay result, but still weaker than IPO raisings in the years from 2003 to 2007.
Much depends on the sharemarket. A fourth-quarter rally will see several companies that have been itching to float rush to market before the Christmas holidays. December is traditionally a strong month for IPO activity.
Many vendors will have to adjust price expectations lower to get their IPO away - possibly creating better value for eagle-eyed investors.
