After Myer, more buyout firms plot exits in Australia

MELBOURNE (Reuters) - More private equity firms in Australia are eyeing exit strategies by floating companies in the wake of U.S. buyout group TPG's TPG.UL launch this week of Myer's $2 billion initial public offering.

While conditions seem favorable for IPOs, with the Australian stock market .AXJO at a 1-year high and investors, according to broker CommSec, sitting on $175 billion of cash, how many follow TPG's lead will depend on how Myer's IPO fares.

Media speculation has centered on camping and outdoor gear retailer Kathmandu, in a deal that could raise up to A$400 million and see a cross-listing on the Australian and New Zealand exchanges, and the former Rebel Sports chain, now part of Ascendia Retail.

"The litmus test will be the IPOs of Myer at the big end and Kathmandu at the small end," said David Goffage, head of equity capital markets at Royal Bank of Scotland's Australian unit.

"At this stage, there is a long list of potential names, but it is very much dependent on the strength of the market. From the sentiment point of view, it's important that the next few IPOs trade well," Goffage added.

Bankers estimate Australian companies will raise about A$10 billion ($8.84 billion) through IPOs in the next 12 months, if all goes well with the float of Myer, the country's biggest department store chain, which is expected to price in November.

CYCLICAL REBOUND

Private equity players that own retailers are expected to be first out of the blocks.

Retailers are seen as one of the main beneficiaries of a strong cyclical rebound in earnings next year, making them attractive to investors as Australia's economy emerges with only bruises from the global financial crisis.

"IPO activity is definitely going to be on the increase, you've seen that across Asia as well," said Akshay Chopra, a portfolio manager with Karara Capital.

"We are going to see more, especially some of the smaller retailers under the private equity banner," he added.

Kathmandu was bought by Goldman Sachs (GS.N) and Quadrant Private Equity in 2006 for A$195 million. Goldman declined to comment.

Ascendia was taken private by Archer Capital in 2007.

"They are considering options. A lot of investment banks have been going to talk to them," an industry source with knowledge of the situation told Reuters about Ascendia.

Clothing retailer Colorado Group, car parts distributor Repco and drinks firm Independent Liquor are other potential candidates.

REDGroup Retail is seen as another IPO candidate. REDGroup was the renamed combination of the local arm of U.S. bookstore chain Borders, which was bought by Pacific Equity Partners (PEP) in 2007, and local bookseller A&R Whitcoulls. PEP declined to comment.

But investor fatigue seems to setting in elsewhere.

Singapore's Wilmar (WLIL.SI), the world's biggest listed palm oil producer, is likely to delay a $3 billion listing of its China unit in Hong Kong as concerns about frothy markets hurt investor sentiment.

Doubts are growing even in Australia. Already, the record of local IPOs is patchy, with clothing group Pacific Brands (PBG.AX) trading at half its 1994 issue price and drilling services company Boart Longyear (BLY.AX) trading at less than a quarter of its listing price.

"There are good, strong brands waiting (to come to market), but they are floating at a pretty buoyant time," said Northward Capital portfolio manager Simon Rutherfurd.

"Investors like ourselves will wonder how sustainable is the rate of earnings growth that they've got now."

(Additional reporting by Denny Thomas; Editing by Muralikumar Anantharaman)