Australia's IPO window closing on Healthscope and Medibank listings

Thu Jul 10, 2014 11:20pm EDT

* Two biggest Australian listings since 2010 coming to market

* Sharemarket up just 1.9 pct in first half

* Investors growing wary of high prices

By Byron Kaye

SYDNEY, July 11 (Reuters) - Australia's IPO window appears to be narrowing as the sharemarket loses momentum and offerings start to look overpriced, sapping demand for the combined $7 billion listings of hospital firm Healthscope Ltd and insurer Medibank Private.

Australia had a record first half of new listings in the six months to June 30, with $4.1 billion raised in initial public offerings, or five times the amount sold in the same time last year.

But after a promising start to the year, the sharemarket has lost momentum thanks to falling iron ore prices and a hit to consumer confidence from an unexpectedly austere federal budget. For the full first-half, stocks rose just 1.9 percent.

"There's a bit more caution than there was perhaps at the end of last year, and that makes it more difficult to get IPOs away successfully," AMP capital Investors chief investment officer Shane Oliver said.

The uncertainty may mean demand for listings decided during the IPO frenzy that defined the second quarter of 2014 is weaker than anticipated, leading other companies to delay their listings or sell assets privately. Firms that had been pursuing an IPO to raise capital may consider increasing debt instead.

State governments with about A$100 billion of assets earmarked for privatisation also will be watching nervously from the wings, in particular the listing of $4 billion state-owned insurer Medibank due before July next year.

"You're seeing more and more reports that people think the equity market's getting expensive," said a principal at a Sydney funds management firm, who does not plan to buy Healthscope shares before its $2.5 billion listing on July 28. The listing has a multiple of up to 23 times earnings.

"Healthscope could easily be a transaction where people find out that they've paid a very high multiple and it doesn't trade well," the principal said, requesting anonymity because of the sensitivity of the matter.

Andrew Martin, principal at Alphinity Investment Management, who has not yet decided whether to buy into Healthscope, noted that several listings had been priced at the top end of vendors' price targets.

"The market's not that frothy that those things are going to do well," he said.

CRACKS EMERGING

In one of the weakest listings of the year so far, Macquarie Group Ltd on Wednesday watched its latest sharemarket debutant, children's online education company 3P Learning Ltd , end its first day as a listed company with its shares 14 percent below their issue price.

Fund managers noted that while the company was profitable and growing - neither of those a given for a tech company - it was also priced with a multiple of up to 35 times net profit.

"It does have growth but not the level of growth that would justify that multiple so we just couldn't rationalise paying that price for that business," Platypus Asset Management chief investment officer Donald Williams said.

"We didn't participate in it (and) the main reason was we thought it was overvalued."

Macquarie sold its 15 percent stake in the company as part of the listing as well as running the IPO.

Another recent Macquarie listing, clothes company PAS Group Ltd, is currently sitting 12 percent below the issue price determined by the investment bank, which sold down its 17 percent stake as part of the listing.

Macquarie cancelled two other listings earlier in the year, online retailer OzSale and Sterling Early Education, after investors expressed doubts. Macquarie subsequently listed OzSale in London as MySale Group PLC, where a month after listing its shares are 6 percent below their issue price.

UBS pulled a listing of hotel company Mantra Group Ltd in March when investors balked at the price, then went ahead with the IPO two months later at the same price of A$1.80. The stock was at A$1.84 on Friday.

"Later in the year might be better timing than sooner for (Healthscope and Medibank)," AMP's Oliver said.

"By year-end some of the concerns about the Australian economy, around the budget and confidence, might have started to abate."

(Reporting by Byron Kaye; Additional reporting by Thuy Ong; Editing by Stephen Coates)