Telstra 3 crowns remarkable year

  • 17 Jan 2007
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Can the Australian stockmarket continue to be so buoyant after racing up more than 110% since the end of the Iraq war? The answer is likely to be yes, as Mark B Johnson explains.

2006 was a year in which Australia yet again punched above its weight in the Asia Pacific equity capital markets. The market registered $38.8bn of issuance, beaten in the Asia Pacific region only by Japan and China, with $70.9bn and $47bn of issuance, according to figures from Dealogic.

"The backdrop to the market's continuing high level of issuance is the growing surplus in superannuation funds, which is accelerating with recent changes to taxes on superannuation," says Wayne Kent, head of equity capital markets at Macquarie Bank in Melbourne.

He argues that, taking into account dividend reinvestment, corporate takeovers and rapidly rising private equity inflows from across the globe seeking Australian acquisitions, the market could easily absorb more than the actual issuance volume achieved in 2006.

Macquarie Bank had risen to number one in the Australian ECM league tables for both 2004 and 2005, having muscled up from number three in 2001. But last year the bank dropped to number four because of the Australian government's third selldown of shares in Telstra, the national telecom company. Macquarie was not a lead on the $11.92bn deal, known as T3.

UBS had for many years been the ECM top dog in Australia. It regained this position in 2006, thanks to a remarkable year of deals, including a role as arranger on T3, alongside ABN Amro Rothschild and Goldman Sachs JB Were.

Guy Foster, co-head of ECM, Australasia at UBS in Sydney, surveys a landscape in which mergers and acquisitions, spurred in particular by private equity inflows, have underpinned the capital market. "There is an amazing amount of cash — institutional, retail, corporate and private; local and global — looking for good assets and good cashflows in Australia. Almost the entire Australian stockmarket is up for grabs and this is creating additional support for valuations of listed companies."

While UBS participated in many of the more important equity and hybrid securities deals in 2006, Foster and his UBS colleagues are especially pleased with the T3 selldown. The deal was supposed to have raised more than A$25bn when first mooted several years ago, but was then scaled back to about A$8bn after Telstra's share price slumped. With that background, when the deal was concluded at A$15.5bn there was widespread acclaim for its handling by government decision makers, the company and the three arrangers.

Foster was delighted that the combination of a broad global offer, including a Japanese public offer without listing, and the entitlement offer for existing shareholders and loyalty share kicker all provided fertile ground for the deal.

Institutions could buy through to the last day of the bookbuild to either create or boost their entitlements. As the non-shareholder allocation was to be capped at 15% of the offer, this also helped create a demand-driven floor for the stock price.

Moreover, as entitlement was to be based on beneficial ownership, institutions either retained shares or called back shares on loan, thereby providing a natural squeeze on short selling. "The result was as we had expected," says Foster, "a solid share price performance during the offer, a tight discount and a far larger sale than most had thought possible."

Without the T3 deal, Macquarie would have come first in the league table, comfortably ahead of UBS. "Leaving aside T3," says Kent, "we have maintained our dominant position in pure equity and in equity hybrid transactions, which have again featured large this year."

In the financial services sector, the largest segment of the market in 2006, Macquarie arranged all three big capital-raising exercises: the large follow-on equity issue for Insurance Australia Group in December; the ordinary share placement for Macquarie Bank itself; and two hybrid capital issues, for CBA and Westpac.

Paul Donnelly, executive director at Macquarie equity capital markets in Melbourne and head of the firm's hybrid capital business, says: "The hybrid market here has developed to at least A$4bn per annum and the continuing thrust towards balance sheet efficiency and optimisation of capital, combined with a benign rating agency stance, will mean this market should continue to grow."

The property sector accounted for about A$6bn of issuance in 2006, with notable deals for Macquarie Goodman, Charter Hall and Becton.

In the IPO arena, the A$1.075bn sale in April of explosives maker Dyno Nobel was the largest of 2006, followed by mining equipment lessor Emeco in late July.

Looking ahead to 2007, Kent is optimistic. "We do not see any standout deals during 2007 but we are busier than ever with a large pipeline of transactions," he says. "The intensifying corporate and private equity-driven acquisition activity will also result in plenty of recycling of assets and companies through the stockmarket."

  • 17 Jan 2007

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 JPMorgan 192,079.22 851 8.17%
2 Citi 181,567.62 744 7.72%
3 Bank of America Merrill Lynch 152,466.12 623 6.48%
4 Barclays 142,653.63 569 6.06%
5 HSBC 120,106.34 625 5.11%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
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1 Credit Agricole CIB 21,924.17 77 8.15%
2 BNP Paribas 19,758.95 84 7.35%
3 Bank of America Merrill Lynch 17,751.88 49 6.60%
4 Deutsche Bank 12,953.29 48 4.82%
5 UniCredit 12,630.44 68 4.70%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
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1 Morgan Stanley 6,404.49 28 10.24%
2 JPMorgan 5,949.53 36 9.51%
3 Goldman Sachs 5,596.92 27 8.95%
4 UBS 4,138.47 20 6.62%
5 Citi 4,111.21 29 6.57%