IPOs experience a cyclical patch

The rate of new public listings has dropped but industry experts refuse to believe this is a new normal, writes James Penn.

there continues to be a strong role for Government in outlining a clear pipeline of projects (across a range of asset classes including toll roads, prisons, hospitals, and rail projects), so foreign capital keeps New Zealand on the radar, as well as ensuring legislation around areas such as interest withholding tax are competitive versus other jurisdictions, and encourage investment in New Zealand.

“While the domestic debt market can meet requirements up to a certain capacity, foreign capital is expected to play an increasing role to meet the planned infrastructure spend.”

Kiwis who have collectively saved more than $40 billion in KiwiSaver — an average of just under $15,000 per person — might also question whether investment allocations are structured to deliver sufficient funding for NZ growth (and the needs of savers). Australian research firm Strategic Insight After just three initial public offerings (IPOs) each year in 2015 and 2016, there appears to be a new, and perhaps worrying, normal for the NZX. However, industry players are divided on the outlook.

Immediate expectations for 2017 suggest a few listings is the best we can hope for. This paints a bleak picture when compared with the 12 IPOs on the NZX in 2014 and seven the previous year.

The sustained slump seems to be the result of a combination of increased activity in other sectors of the capital markets and uncertain market conditions.

Chapman Tripp’s recent New Zealand Equity Capital Markets Report predicted a continuation of those factors in 2017.

“The uncertain local and global political environment and the mixed performance of a number of recent IPOs is likely to dampen investor appetite,” said the report.

“A healthy M&A market, which carries has released figures showing total KiwiSaver balances hit $40.651 billion at the end of March; up from $38.416b at the end of December.

With KiwiSaver poised to turn 10 this year, it is worth asking whether more avenues for investment should be provided onshore.

In its report, World awash with Money, Bain & Company looked at capital trends through to 2020. The consultancy firm predicted that for the balance of the decade, markets will generally continue to grapple with an environment of “super-abundance”.

It says there has been a power shift from the owners of capital to the growers of good ideas. “In this environment, investors’ success will be determined less by how much money they command than by their ability to spot an investment’s true creation potential and act on it nimbly. Those that can react with speed and adaptability will be best able to identify the winners, steer clear of bubbles and generate superior returns.”

There is an abundance of innovation in New Zealand. Time for that Kiwi prospectus to fund our growth and our ideas. lower transaction costs for vendors and greater certainty of a successful exit, is another reason likely to keep listings at a lacklustre level.”

However, while Chapman Tripp’s report dubbed the three listings per year a potential “new normal”, industry players are less willing to make such forecasts.

“The rate of listings per year is cyclical,” says Henry Chung, Head of Equity Capital Markets at FNZC. “Yes, there were a quarter of the IPOs in 2015/2016 vs 2013/2014 but over those four years there were 27 listings (excluding ETF products) compared with seven from 2009-12.

“I’m not expecting a material uptick in 2017 but I don’t think you can ever say for cyclical activities like listing numbers that there’s a ‘new normal’.”

Brian Gaynor, Head of Investments at Milford Asset Management and columnist for the Weekend Herald, shared similar sentiments. “I hope it is not the ‘new normal’. There is no sign of a quick uptick in 2017 and it is far too early to talk about 2018.

“IPO trends are cyclical and one would hope that 2018 and 2019 will be better.”