ECM activity ramping up in 2019

The first quarter of 2019 has seen growth in equity capital market (ECM) activity with the S&P/ASX 200 index advancing to its best quarter since September 2009 – up 9.5 per cent – buoyed by a mix of IPOs, hybrid issuances by the banks, Listed Investment Trusts (LIT) and Listed Investment Companies (LIC) raising large amounts of capital and also block trades.

Allens' Co-Heads of ECM, Julian Donnan and Robert Pick noted the uptick in the market is in contrast to 2018 where activity was modest.

'The pipeline looks positive and there is more cause for optimism in 2019 where we are already seeing strong deal flow and a diverse range of issuances,' Julian Donnan said.

'The improved market conditions and investor sentiment will also lend support to secondary raisings where investors have been willing to support issuers with accretive acquisitions,' Robert Pick said.

The Allens ECM team has had a busy start to 2019 advising on:

• the ReadyTech Holdings Limited IPO – launched in March 2019 and seeking to raise $50m. This IPO will be the largest IPO of the year so far and one of the largest corporate IPOs since the Viva Energy IPO in August 2018 (on which Allens also acted). Allens is acting for the joint lead managers on the transaction;
• the Pengana Private Equity Trust IPO – launched in February 2019 and seeking to raise a minimum of $100m with a $600m maximum. The Pengana Private Equity Trust will be Australia's first ASX listed investment trust that invests in global private equity. Allens is acting for the joint lead managers on the transaction;
• the MCP Income Opportunities Trust IPO – launched in February 2019 and seeking to raise $300m. The Trust will provide access to private credit investments and bespoke private assets. Allens is acting for the joint lead managers on the transaction;
• the Charter Hall Education Trust placement – launched in March 2019 and raised $120m to finance a number of childcare centre acquisitions. Allens acted for the issuer on the placement and the follow on unit purchase plan;
• the Viva Energy REIT placement – completed in February 2019 and raised $100m to finance a number of acquisitions and to provide balance sheet headroom. Allens acted for the underwriters on the transaction;
• the InvoCare Limited placement – completed in March 2019 and raised $65m to finance strategic growth objectives. Allens acted for the underwriter on the transaction;
• the Otto Energy placement and entitlement offer – launched in March 2019 and which is seeking to raise $31m to fund Otto's share of the GC-21 drilling program, redeem existing convertible notes and for working capital. Allens is acting for Otto Energy;
• the National Australia Bank Capital Notes 3 offer – completed in March 2019 and raised $1.874bn in Additional Tier 1 capital. Allens acted for the joint lead managers on the transaction. The transaction follows the CBA PERLS XI offer in December 2018 which raised $1.25bn and the Westpac Capital Notes 6 offer in December 2018 which raised $1.42 bn (where Allens acted for CBA and Westpac, respectively);
• the Dexus $425m Guaranteed Exchangeable Notes offer – completed in March 2019 to part fund the acquisition by Dexus of a further 50% interest in the MLC Centre in Sydney. The notes are listed on the Frankfurt Stock Exchange. Allens acted for the joint lead managers and underwriters on the transaction; and
• the $28.5 million Hastings Technology Metals offer – announced in April 2019 and seeking to raise approximately $28.5 million, the offer is proposed to be structured as a rights issue with attaching options. Allens is acting for the issuer.

Both Julian Donnan and Robert Pick expect further capital management initiatives by way of off or on market buy-backs by companies with surplus cash and/or excess franking credits to play out later in the year. As examples, Woolworths and Caltex have already announced off-market buybacks, with Janus Henderson currently conducting an off-market process.

'From a regulatory perspective , competition issues and allocations processes, continue to be front of mind for ECM lawyers,' Julian Donnan concluded.

'ASIC is also focused on disclosure of underwriting agreements where an underwriter might be precluded from taking up the entire shortfall due to the 20% takeover prohibition, including details of any excess shortfall that may arise, control impacts, and terms on which the sale of any excess shortfall may occur.'

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