UPDATE 1-Strong Spotless float lifts hopes of Australian IPO recovery

Thu May 22, 2014 11:05pm EDT

* Biggest Australian float in 4 yrs trades at 9 pct premium

* Confirms Australian IPO market is healthy

* Bodes well for Healthscope and Medibank floats (Adds broker comment, background)

By Byron Kaye

SYDNEY, May 23 (Reuters) - Shares in Australian industrial services company Spotless Group Ltd debuted at a nine percent premium to their offer price on Friday, raising hopes the country's IPO market is emerging from years of sluggish performance.

A strong start for Australia's biggest float in almost four years - with about A$1 billion ($923.50 million) worth of stock on issue - will encourage other private equity firms considering even larger listings, such as that of TPG and Carlyle owned healthcare provider Healthscope.

It is also likely to encourage the Australian government which has said it plans to float state-owned health insurer Medibank Private in a listing expected to fetch A$4 billion.

Investors traded the shares at A$1.75 at 02.00 GMT, well above the issue price of A$1.60. The shares fell back to A$1.72 by 02.18 GMT.

Australian private equity firm Pacific Equity Partners took Melbourne-based Spotless private in August 2012 after buying it for A$723 million. After the float, the company had a market capitalisation of A$1.9 billion.

"It listed at the bottom of its range so that could be one reason" for the strong debut, Lonsec senior client adviser Michael Heffernan said.

"They're looking for something that's got a bit of grunt to it and is not priced over the odds."

Australia's IPO market is heating up as the sharemarket trades around record levels following five years of erratic performance.

Shares in the company with the No. 2 Australian float of the year behind Spotless, mortgage insurer Genworth Mortgage Insurance Australia Ltd, were trading at A$2.94 on Friday, compared with their A$2.65 issue price, having listed on Wednesday.

Not including the A$1.5 billion raised by Spotless and Genworth in the past week, IPO issuance in Australia since the beginning of the year has more than doubled to $1.2 billion over the same period in 2013, according to Thomson Reuters data. Companies raised $6 billion from new listings in 2013, the best year since 2010.

Just 21 months since it bought Spotless following a bitter takeover battle, PEP says it has restructured the business so that it will triple earnings by 2015 by stripping overheads and selling underperforming divisions. ($1 = 1.0828 Australian Dollars) (Reporting by Byron Kaye; Editing by Stephen Coates)