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Matthew Smith has been a business and financial journalist for more than a decade. He previously worked with the Financial Times Group, reporting from New York on company buyouts and refinancing in the wake of the Global Financial Crisis. He started his career reporting on the funds management industry in Sydney.

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Capital markets: one man’s cesspit is another’s money bin

Published 06 March 2013 12:44, Updated 07 March 2013 09:24

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Capital markets: one man’s cesspit is another’s money bin

Rip Curl co-founders Brian Singer and Doug WarBrick at Bells Beach. Photo: Paul Harris

What to Rip Curl chief executive Brian Singer is a “cesspit” may be another chief executive’s money bin, or warm bath.

This may not be a conventional saying but it neatly applies to what’s happening in equities markets, particularly as it relates to companies and their widely varied ability to raise capital.

Corporations that have been starved for capital in the past five years may be increasingly optimistic as they look at the stellar run of the equities markets.

The daddy of all equities indexes, the Dow Jones Industrial Average, surged to a record on Tuesday in New York– breaking through the level set before the 2007 market crash – as investors showed confidence that the gains would continue.

On the home front, local equities have also had a bull run and the S&P/ASX 200 Accumulation Index is up more than 10 per cent this year. Optimism at home for the resurgence of equities reflects the bulls’ case in the US.

And given expectations the Reserve Bank of Australia may have further rate cuts for this year up its sleeve, corporation decision makers must be thinking the time is as ripe as it’s been for a long time for new equity capital raisings.

However, in a seemingly contrary view, surfwear brand Rip Curl chief executive Brian Singer told The Australian on Wednesday the public markets were “a bit of a cesspit at the moment”.

Rip Curl is shelving plans to sell itself, blaming the volatile state of investment and sports markets.

The appetite for acquisitions is largely determined by the trading of listed peers and a company’s ability to raise equity in the public markets. Surely, as confidence returns to the equities markets with every uptick of the relevant index, there must be signs that investors are willing to welcome corporations that have a decent story to tell?

The answer is yes, there is, especially for names with stable revenues and strong earnings, says King & Wood Mallesons head of private equity Mark McNamara, an M&A and capital markets expert.

McNamara says the market is receptive to new offerings, and he predicts numerous initial public offerings will come to market in the June and September quarters this year.

“[Capital markets] discussions are continuing earnestly and a lot of people are spending a lot of time working on deals at the moment,” McNamara says, describing the full pipeline of IPOs the market can expect this year.

It seems the perception of the public market depends on where you stand. It was only at the end of January that another bleak year for IPOs was being forecast by the corporate finance team at HLB Mann Judd.

As many retailers are struggling to adapt to competitive forces from overseas and consumers’ online habits, companies in other industries may be more palatable to investors.

The successful $150 million debt issue by private equity-backed healthcare company Healthscope indicates that there is an investor appetite for corporate bonds and could point to an equity raising down the track.

The online insurance comparison company iSelect is believed to have delayed its listing plans, but it is still expected to come to the market this year.

Mining logistics companies, healthcare and some financial services businesses may regard the public markets as more like a warm bath or money bin than a cesspit.

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