NZX seen having sluggish IPO pipeline in 2016

Monday 18th January 2016

New Zealand's share market is expected to struggle for new initial public offerings in 2016 without the impetus of a privatisation programme, which is whetting appetites across the Tasman.

There were six new listings on the NZX in 2015, including two compliance listings, down from 12 main board IPOs and four compliance listings on the NZAX junior market a year earlier when the government's partial privatisation programme was completed with the listing of Genesis Energy. Over the same period, Australia's ASX rolled out 77 new listings, up from 71 in 2014, and Harbour Asset Management managing director Andrew Bascand expects to see more opportunities across the Tasman this year with a greater number of companies ripe for listing.

"Even proportionally, it seems there is a deeper pool of companies owned by private equity for a start; some are startups and others are turnaround situations," Bascand said. "In addition, the government sector in Australia has been very active in considering privatisation opportunities. The privatisation process in Australia is alive and well, whereas in New Zealand we seem to have hit the wall. There are many more things we could consider privatising in New Zealand, but there's no political appetite to do so at the moment."

Harbour's Bascand said the market was "quite open" for IPOs, but there didn't appear to be that amount of activity here at the moment. He said the property sector could see IPOs this year, and they would be welcomed if structured correctly.

Several companies last year signalled intentions to list on the NZX, but when global equity markets went through a turbulent period during the middle of the year, vendors' appetite to go public dimmed.

With 2016 underway, some of those firms that tried their luck earlier are thought to be considering a second attempt, including poultry producer Tegel Foods, equipment rental firm Hirepool, building supplies and distribution group Carter Holt Harvey, and broadcaster Mediaworks.

Bascand said some of the companies such as Tegel and Hirepool get brought up every year, but at the end of the day there is no interest in them.

The Australian newspaper today reported Tegel could be the first listing of 2016. New Zealand's biggest chicken producer, which is owned by Affinity Equity Partners, was considering an IPO late last year.

"Even though it's owned by private equity, it's a good, solid business," a source told BusinessDesk. "It's shown good year-on-year performance for a long time, and there's no hockey stick being sold", a reference to aggressively rising revenue or profit forecasts at odds with earlier performance.

Hirepool's then-majority owner, Australian private equity firm Next Capital, abandoned plans last June for a $262 million dual-listing on the NZX and ASX after concern from institutional investors that on-market support for shares of the unprofitable equipment rental company wouldn't be strong enough.

Hunter Powell Investments now owns 61 percent of Hirepool. Founders Sharon Hunter and Tenby Powell bought Hirepool with Goldman Sachs JBWere from Owens Group for $43 million in 2003.

Carter Holt Harvey, which told the market it was considering an IPO in August last year before canning those plans in September 2015, is also thought to be considering an IPO, and the company this month appointed chief executive Prafull Kesha and former Adelaide Brighton managing director Mark Chellew to its board.

Auckland-based Carter Holt was bought by Kiwi billionaire Graeme Hart's Rank Group for $3.31 billion in 2006. Rank has since sold the company's forestry and farm land and its pulp and paper unit, leaving a smaller business focused on wood products and building supplies.

Mediaworks has been touted as another potential listing candidate, though an investor said the market should "definitely be very dubious" about a Mediaworks IPO as the company has a number of issues to work through.

A smaller company likely to come to market this year is technology incubator Powerhouse, which is raising $15 million of new capital over the next six months as a precursor to a planned IPO and dual listing on the NZX and ASX in July/August.

Chief executive Stephen Hampson said it was currently hoping to raise around $3 million in a crowd-funding bid on Snowball Effect, and a further $12 million from institutional investors prior to the IPO. He said it would be difficult establishing the value of Powerhouse as none of the companies it has incubated and invested in has yet been sold or listed. The measure of its success will rely on any improvement in the aggregate value of the portfolio companies, based on new third party funds they have raised.

BusinessDesk.co.nz

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