Australia’s IPO Market Pins Hopes on Virgin’s Return, Molycop

Australia is relying on two billion-dollar listings to save it from the worst year on record for initial public offerings.

Companies have only raised about A$885 million ($572 million) through first-time share sales in the country so far in 2023, according to data compiled by Bloomberg. This comes after 2022, which was itself the slowest year for IPOs down under since 2012, with just A$1.1 billion raised.

The eerily quiet IPO market means bankers are pinning their hopes in airline Virgin Australia Airlines Pty Ltd. and metals processor Molycop, which could raise A$2 billion in total should they proceed with their listing plans this year. While the duo have met prospective investors as part of their IPO preparations, it remains uncertain whether they will launch the deals before the end of 2023.

“It’s been a really challenging year, we’ve seen a real drop off in activity,” Marcus Ohm, a partner at accounting firm HLB Mann Judd, said in an interview. “IPOs are expensive affairs so if you’re going to go down this path, you’ve got to be really confident you’ll have a successful bookbuild. For these larger companies it’s also a reputational issue if it all falls over.” 

Molycop has begun a non-deal roadshow with prospective investors, targeting for a listing before the end of this year, according to people familiar with the matter, who asked not to be identified as the information is private.

Bain Capital, the owner of Virgin Australia, is closely watching the latest earnings season in Australia before rolling out more investor briefings for the IPO, the people said. Qantas Airways Ltd., Virgin’s biggest domestic competitor, is buying more aircraft in a bid to keep pace with a post-pandemic travel boom that’s delivering record profits.

However, while the benchmark equity index is up about 4% year to date, investor confidence is fragile. Observers such as S&P Global Ratings predict a soft landing for the economy, though they remain concerned that central bank rate hikes to stamp out persistent inflation could still trigger a recession.

Chemical distributor Redox Ltd., which raised about A$402 million in Australia’s largest IPO this year, saw its shares fall as much as 15% below the issue price before recovering.

Bain hasn’t made a final decision on the timing of the IPO and it may happen next year, or even later, depending on the market, the people said. Representatives for Virgin and Molycop declined to comment.

“Virgin is an interesting one because you may think, ‘What a great time to list an airline right now,’ but there’s so many challenges out there and uncertainty around earnings for all types of companies,” Ohm said.

--With assistance from Filipe Pacheco.