Australia's IPO market hits skids after gov't announces Medibank sale

Thu Mar 27, 2014 5:27am EDT

* Government announced A$4 bln Medibank sale on Wednesday

* Mantra Hotels ditches A$500 bln IPO on same day

* OzSale, Stirling Early Education also shelve IPOs

* IPO fever gives way after recent listings' mixed fortunes

By Byron Kaye

SYDNEY, March 27 (Reuters) - The Australian government has announced the initial public offering (IPO) of health insurer Medibank Private just as the country's revived IPO market hit the skids with the shelving of three sales worth over A$1 billion ($922.45 million).

Australia's IPO drought of some five years ended in 2013 with a six-fold on-year increase in the value of sales, while the stock index built on a 2012 recovery with a 15 percent rise.

The shares of several large IPOs, however, have since languished below their sale price, and post-IPO prices this year have fared no better. Senior investors said IPO fever last year led to many shares being priced too high.

While the government announced the A$4 billion sale of Medibank on Wednesday, Mantra Hotels was abandoning its IPO after scaring away investors with its high price. A similar fate recently befell retailer OzSale and Stirling Early Education.

"Last year there was a wave of IPOs and investors were buying almost anything," said Fort Street Advisers principal Richard Hunt.

"In the new year, investors seem to be more selective about what businesses they want to invest in and what's appropriate in terms of structure and pricing."

Australia's biggest IPO of the year so far looked set to be the A$500 million sale of Mantra Hotels. The country's second-biggest hotel operator shelved the plan late on Wednesday as not enough investors were willing to pay the asking price, a person close to the sale told Reuters.

Online discount retailer OzSale had been preparing a A$500 million IPO for over a year but has also called off the idea, another person told Reuters on Thursday.

Childcare centre owner Stirling on March 17 cancelled its A$200 million IPO after likewise failing to attract enough investors. A week later, rival G8 Education Ltd said it would buy 91 Stirling centres for A$228 million.

The mixed fortunes of IPOs completed late last year and earlier this year appear to be influencing market sentiment, senior investors said.

Shares of television station Nine Entertainment Co traded below their December IPO price for their first month after listing, whereas packaging company Pact Group Holdings Ltd is yet to trade above its December issue price.

This year's largest IPO to date of car rental company SG Fleet Group Ltd is also yet to trouble its issue price.

"There were a lot of floats late last year and they had a mixed reception," said AMP Capital head of investment and chief economist Shane Oliver.

"That would have had some impact, and more recently the share markets globally have been quite jittery."

IG market strategist Evan Lucas also believed appetite for IPOs was selective, with companies booking reliable or quick-growing profit still attractive.

On the other hand, companies such as Mantra Hotels that are heavily involved in real estate, for instance, could suffer reduced earnings growth while Australia's mining boom slows, Lucas said.

"You've got to concentrate on who it was and what they were selling, rather than saying the whole IPO market is falling in a heap," Lucas said. (Editing by Christopher Cushing)