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2023 in review

2023 was a very quiet year for IPOs, continuing the downturn experienced in 2022 after the post-Covid-19 highs of 2021. There were only 32 IPOs in 2023, less than half the number which took place in 2022, which in turn was less than half the number in 2021. While up on 2022, the total volume of capital raised was much lower than the 2021 highs – $13 billion was raised in IPOs in 2021 but only $3 billion in 2023, and with the vast majority of listings falling below the $50 million market capitalisation mark. 

However, there were some bright spots in the year, including the listing of chemicals distributor Redox Limited (which raised $402 million in capital and listed with a market capitalisation of some $1.3 billion), on which Herbert Smith Freehills acted, for Redox and rare earth elements miners Brazilian Rare Earths Limited ($315 million market capitalisation) and VHM Limited ($266 million market capitalisation). These examples illustrate that listings at scale were still possible in 2023, although successful large IPOs were concentrated in the materials/resources and industrials sectors. Although there were only a handful of larger listings, they contributed to the aggregate market capitalisation of new listings increasing from 2022 by more than $2 billion (despite the fall in the number of IPOs). 

As we observed last year, in our key themes for 2022, Australian IPO activity continues to be affected by global conditions, including rising inflation, interest rates and market volatility. These factors have led to reduced investor confidence and affected the levels of IPO activity. There is no doubt that companies otherwise considering IPOs are conscious of these factors, and are in many cases awaiting more favourable market conditions, and greater stability around valuations, before launching a transaction. This is particularly the case in non-resources / materials sectors.

While it may be some time until the market returns to the highs witnessed in 2021, the immediate effects of the Covid-19 pandemic are now well in the rear view mirror. If global economic conditions stabilise, and inflation and interest rates are brought under control, we are cautiously optimistic about the prospects for recovery in 2024, but importantly subject to global geopolitical conditions also stabilising. 

Outlook for 2024

With increasing certainty interest rates will level out, there is a level of optimism that the necessary level of certainty to carry out capital market transactions will increase. That said, with higher levels of geopolitical instability and looming significant events including upcoming US elections, we hold no expectation that this will necessarily be the case.

In light of the ongoing dynamics of tightening supply of key commodities we expect to see mining sector companies continuing to raise capital and seeking to list and with the ongoing energy transition we further expect to see the sectors tied to renewables to be key in the coming year.

Cick here for further details of the 2024 outlook.

New area of review: secondary raisings

Readers will have noticed that this year’s edition has been titled the Australian ECM Review. This is because we have expanded the scope of this year’s review to introduce a new and ongoing ‘Secondary raisings by the numbers’ section.
In this section, we comment on some key trends and developments in relation to secondary capital raisings of at least $50 million – including rights issues, placements and share purchase plans (SPP). 

In this section, we comment on some key trends and developments in relation to secondary raisings of at least $50 million – including rights issues, placements and share purchase plans (SPP).

In 2023, the combined placement and SPP was by far the most commonly employed secondary offer structure, comprising 42% of raisings, followed by the combined placement and rights issue, comprising 22% of raisings.

Of course, the placement plus SPP structure is constrained by the ASX 15% per annum placement limit, so the fact that many raisings followed this format is to some extent symptomatic of the fact that many raisings were on the smaller side, relative to existing issued capital. 

The largest secondary raising for the year was Orora’s $1.35 billion placement and ANREO. This issuer appears to have ‘maxed out’ placement capacity and raised the remaining funds required (for the acquisition of French-based bottling concern Saverglass SAS) via the ANREO component of the raising. 

The secondary raisings of the past year were mainly undertaken for non-M&A reasons (80% of all secondary raises surveyed), with issuers indicating various use such as business growth, balance sheet repair and the funding of strategic initiatives. These matters – particularly balance sheet repair – may be reflective of the subdued market and consequently lower M&A activity, as well as a wish by issuers to reduce debt in a higher interest rate environment.  

Click here for further details of secondary raisings in 2023.

Key regulatory updates

2023 saw a number of regulatory developments in the Australian ECM landscape. 

One of these was the introduction of the much-anticipated unfair contract terms (UCT) reforms on 9 November 2023. A change attracting much attention is that the definition of a ‘small business’ has been expanded from a business with <20 employees to one with <100 employees or with <$10 million in annual turnover. The effect of this has been to capture a much wider range of firms able to rely on the UCT regime – including some institutional investors who are parties to contracts in the capital raising context. In early February 2024, ASIC published limited class no-action position in respect of the UCT regime. The no-action position is in respect of certain standard form contracts that are: 

  • made with an institutional investor; or 
  • made between wholesale clients on an Industry Standard Form Contract (which includes the AFMA Master ECM Terms). 

ASIC’s no action position does not extend to disclosure documents or secondary equity raising documents (such as security and interest purchase plan booklets, initial public offering disclosure documents and application forms, and entitlement offer booklets).

Further, the Federal Court of Australia in October handed down its decision in connection with ASIC’s action against ANZ for allegedly breaching continuous disclosure obligations during its $2.5 billion institutional share placement in 2015. The Court found in favour of ASIC, ordering ANZ to pay a $900,000 civil penalty, which ANZ is appealing.

In determining that the allocation of a substantial proportion of the offer (~30%) to ANZ’s underwriters to be material information which should have been disclosed to the market, the decision has highlighted the importance of vigilantly considering continuous disclosure during the course of secondary raisings. 

Other moves by ASIC included a ramp-up in ‘greenwashing’ proceedings against companies making representations as to sustainability and carbon emissions reduction, and market surveillance into IPO and post-listing disclosure practices of companies in the mining exploration sector, and rights issue interventions. 

The year also saw high volumes of APRA-regulated bank and insurer hybrid raising. In September 2023, APRA released its discussion paper ‘Enhancing Bank Resilience’, seeking feedback on the effectiveness of such hybrid instruments as a component of the loss-absorbing capital of regulated entities (partly in response to the experience of holders of comparable instruments in Credit Suisse which were written off as part of the rescue acquisition of Credit Suisse by UBS).1  In doing so, the regulator effectively put the markets on notice of its concern that the securities were not ‘operating as originally intended’ – with the possibility of those instruments being put ‘behind the counter’, and away from retail investors. It remains to be seen what direction APRA will ultimately take, but Australia has been an outlier in some respects in allowing retail investors to access these securities (with comparable European markets being largely institutional). 

Click here for further details of the regulatory developments affecting ECM in 2023.

Continuing block trade activity facilitating completion of IPO exits

While IPO activity in 2023 has been down, blocks of stock retained by vendors in past year IPOs have continued to come out of escrow, leading to healthy block trade activity. A notable example was the successful sale this year of Apollo Funds’ and CIMIC’s ~65% retained holding in Ventia Services Group (following their 2021 IPO sell-down of 4% and issuance of new shares of 26%) over a series of four tranches, on which Herbert Smith Freehills acted, with each trade occurring at a substantial premium to the IPO price of shares. 

Click here for further details of block trade activity in 2023.

Turning tides:

The Australian ECM Review 2023

Key contacts

Philippa Stone photo

Philippa Stone

Partner, Sydney

Philippa Stone

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