After a record year of capital raising activity, what’s ahead in 2021? INN asked experts and analysts to share their thoughts.
Last year was undoubtedly challenging for companies in all sectors, with an increased number of ASX-listed companies racing for cash to survive global uncertainty.
The Australian government implemented unprecedented monetary and stimulus measures to battle the impact of COVID-19, ultimately making 2020 a historic year for capital raising on the ASX.
At over US$37 billion last year, equity capital market activity hit a record not seen since 2015.
Speaking with the Investing News Network (INN) about capital raising trends seen in Australia, Elaine Tan of Refinitiv said 2020 was a strong year for equity listings in the country across multiple sectors.
According to the firm’s data, the financials sector accounted for the majority of the equity capital raisings in Australia, capturing 20.4 percent of the market at US$7.6 billion, up 30.5 percent from a year ago.
Materials followed behind with a market share of 17.3 percent for a total of US$6.4 billion, an 87.8 percent increase from 2019 and the highest annual total since US$7.3 billion in 2011.
“The sector also saw the greatest number of equity capital market offerings as it reached the busiest-ever annual period in 2020, driven by activity from metals and mining (US$5.7 billion),” Tan said.
Given that 2020 was such an active year, Antony Rumboll of Baker Mckenzie expects 2021 to be a little more subdued, assuming conditions generally improve as the COVID-19 pandemic subsides.
“That said, there is always a level of demand for new capital raisings,” he told INN. “With increasing commodity prices, we believe resources will be well supported if they need to raise capital.”
In 2021, companies across the technology, healthcare, financials and resources industries will likely continue to benefit from investor demand.
Looking at what could happen this year, Timothy Toner, managing director and founder at Vesparum Capital, told INN that the current market environment is certainly conducive to capital raisings.
“We expect companies in the resources sector to try to leverage the positive market sentiment to fund future development and exploration activities, particularly given the recent commodities boom,” he said.
For Tan, senior analyst on Refinitiv’s deals intelligence team, 2021 will most likely focus on recovery.
“While uncertainties remain, the momentum in equity capital market activity seen in 2020 is expected to continue as the impact of stimulus on the equity markets continues to provide liquidity and the imminent rollout of vaccines supports a decent rebound in economic growth,” she said.
Moreover, equity capital market activity in these sectors is seeing upticks already at the start of this year.
Total equity capital market proceeds raised so far in 2021 for the financials sector are up 258.9 percent compared to the same period in 2020, while materials proceeds are up 90 percent and high-technology proceeds are up 216.3 percent. Healthcare has grown 37.5 percent by number of equity issues, but has declined in proceeds by 51.8 percent year-on-year.
What’s on the horizon for ASX IPOs?
In 2020, companies not only looked to secure cash to protect their balance sheets and improve liquidity — some also decided to make the jump and go public. Initial public offering (IPO) activity on the ASX last year was robust, with a total of 113 companies listed, up by 23 year-on-year.
According to Refinitiv data, IPO listings in Australia from the high-technology sector had a market share of 16.8 percent, raising US$610.9 million, an increase of 12.2 percent from 2019. That was the highest annual total since 2015, when proceeds reached US$948.4 million.
“Nuix’s (ASX:NXL) US$353.3 million IPO was the second largest IPO in Australia for 2020,” Tan explained to INN. “As technology continues to be a disruptive enablement of change, it will continue to be an enduring trend into 2021.”
“IPO activity was very strong in the back half of 2020, and there are a significant number of potential IPOs in the pipeline for 2021,” Toner said. “We are seeing a number of high-growth private tech companies accelerating their IPO plans as a result of strong performance during the COVID-19 period.”
This year, the ASX expects the three popular sectors of technology, healthcare and resources to focus strongly on IPOs, Rumboll explained.
“The ASX is also placing a focus on international diversification of the (exchange), seeking more international companies (especially those from the US) to choose ASX as their listing venue,” Rumboll said. “Assuming the current conditions continue, we expect 2021 to be another strong year for IPOs.”
Speaking about the challenges for companies seeking a public listing, Rumboll pointed to the sheer number of IPOs coming to market, as well as market fundamentals and sentiment.
“The Australian IPO market can close very quickly, and so one bad experience for investors can quickly close the market,” he said.
Toner also pointed to the high number of companies looking to debut on the exchange as a challenge.
“Interest from institutional investors is probably the key impediment given most funds we work with are inundated with pre-IPO and IPO opportunities and (are) growing increasingly nervous about valuations.”
But can retail investors benefit from the upcoming listings on the ASX?
“Generally, retail investors must receive an allocation from their brokers, and so investors should look to their brokers in order to benefit from IPOs,” Rumboll said. “As with all investments, investors need to consider the prospectus closely to consider each IPO on its merits and take professional advice.”
For Toner, the odds are stacked firmly in favour of institutional investors in terms of access to IPOs.
“However there are still some compelling IPO opportunities for retail investors,” Toner said. “Due diligence is critical given the significant variability in deal quality.”
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.