August 2004
Statement on Monetary Policy
Box D: Initial Public Offering (IPO) Activity in
Australia
The past year has seen a relatively high
level of IPO activity on the Australian Stock
Exchange (ASX). Since end June 2003, more
new companies have listed on the ASX than
during any previous 12-month period aside
from the ‘dot.com’ related wave of IPO
activity during late 1999 and 2000
(Graph D1). In terms of the value of
equity capital raised through primary
offerings (excluding privatisations and
demutualisations), the past financial year has
been the strongest on record.
Graph D2
Share Prices and IPOs of the IT Sector
Index
Index
ASX 300 IT index
800
800
600
600
400
400
200
200
No
No
Number of IT sector IPOs
Graph D1
40
40
IT-related
Initial Public Offerings*
Semi-annual
No
No
75
75
30
30
IT
20
Number of IPOs
10
50
25
25
$b
$b
6
6
Equity raised through IPOs
4
4
2
2
1998
2000
2002
2004
0
* Excludes privatisations and demutualisations
Sources: ASX; RBA
The increase in IPO activity in late 1999
and 2000 corresponded with the height of
the dot.com boom (Graph D2). The jump
in the number of IPOs during this period
was primarily due to IT and IT-related IPOs
and came after IT share prices more than
doubled in the first half of 1999. IT share
prices peaked in March 2000 at almost eight
46
10
50
0
0
20
1998
2000
2002
2004
0
Sources: ASX; RBA; Thomson Financial
times their end 1998 level and fell sharply
thereafter, reverting to their end 1998 level
by end 2002. The drop-off in IPO activity
was just as pronounced, with very few IT
companies having listed since 2001.
The pick-up in IPO activity in the second
half of 2003 corresponded with a turnaround
in global equity markets and a more
optimistic global economic outlook. The
increase in listings was in part driven by
listings of materials companies, particularly
mining companies (Graph D3).The strength
in mining IPOs reflected strong increases in
US dollar commodity prices and in demand
from China, and significant increases in
resource company share prices. Other sectors
that have participated in the recent wave of
IPOs include the health care, financials
(pr imarily proper ty trusts and listed
investment companies) and consumer
discretionary sectors.
Reserve Bank of Australia
August 2004
Graph D3
Share Prices and IPOs of the Materials Sector
Index
Index
Share price indices
200
200
150
150
ASX 300 materials index
100
100
50
No
50
Small resources index
No
Number of materials sector IPOs
40
40
30
30
20
20
10
10
0
1998
2000
2002
2004
0
Sources: ASX; RBA; Thomson Financial
As with IT companies during the dot.com
boom, mining companies have accounted for
more than one-third of total listings during
the past year. However, the growth in the
number of listed mining companies is
nowhere near as pronounced: the 54 recently
listed mining companies comprise around
15 per cent by number of all listed mining
companies and a very small share of their
market capitalisation. Moreover, the rise in
resource companies’ share prices, although
strong, has been much less than that of IT
stocks during the dot.com boom.
Many of the recently-listed mining stocks
are start-up companies with little or no
earnings history, and some are not currently
profitable. The speculative nature of some
of these companies is further highlighted by
the wide variation in the performance of their
share prices since listing: the prices of several
have almost tripled, while others have lost
around two-thirds of their value. By end
June, the median return on issue price for
mining companies that have listed during the
past year was –19 per cent and the weighted
average return (based on the amount raised
in the IPO) was –4 per cent. Less than onequarter of new mining company listings have
outperformed the All Ordinaries index since
their issue. This is somewhat below the
historical performance of mining IPOs.
It should be noted, however, that the share
price performance of other companies that
have listed in the past year has also been
varied (Graph D4). By end June, the median
non-mining company was 1 per cent higher
than its issue price, and the weighted average
return on issue price was 6 per cent. About
half of recently-listed non-mining companies
have outperformed the All Ordinaries index
since listing. This is in line with the average
post-listing performance. R
Graph D4
IPO Outperformance since Issue
Relative to All Ordinaries
%
%
30
30
Other companies
25
25
Mining
20
20
15
15
10
10
5
0
5
-100 -80 -60 -40 -20 0
20 40 60 80 >100
to to to to to to to to to to
-80 -60 -40 -20
0 20 40 60 80 100
Percentage point outperformance
0
Sources: ASX; Bloomberg; RBA
47