Serious questions have been raised about the strength of Australia's initial public offering (IPO) market after insurance distributor Greenstone's owners Hollard Insurance and Gavin Donnelly postponed the insurance business's float indefinitely.
Greenstone is a distributor of products such as life insurance and pet insurance, as well as funeral and income protection, while it also owns comparison website Choosi. The company lodged its prospectus with the Australian Securities and Investments Commission (ASIC) late last month with intentions to list on the ASX in the next couple of weeks in a float that may have yielded up to $984 million for its owners.
However, the company received some criticism from investors and analysts in the days after its prospectus was released with many labelling it as too expensive. As highlighted by the Fairfax press, others were sceptical of its accounting policies, proposed payments to vending shareholders as well as its projected growth figures. As a result, Greenstone's owners have postponed the float indefinitely.
Has the IPO window closed?
Australia's IPO market boomed in 2014 in what Deloitte described as a "banner year" for new floats. A report by the professional services firm showed that a massive $26 billion in equity listed on the ASX through 74 floats in 2014, with average year-end returns on IPOs exceeding 17% as the Australian sharemarket soared to its highest levels since before the Global Financial Crisis.
Notably, investors' appetite for IPOs coincided with a resurgent sharemarket which resulted in incredible performances from freshly-listed companies such as Medibank Private Ltd (ASX: MPL), Healthscope Ltd (ASX: HSO) and Beacon Lighting Group Ltd (ASX: BLX).
But it seems that a lot has changed in just six months with the market becoming increasingly sceptical over new IPOs at a time where the sharemarket is plummeting. The S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has fallen in each of the last six sessions and has dropped more than 8% since late April with investor confidence worsening by the day.
While Greenstone's case could be singled out as a once-off given that concerns over the company's prospects have lingered for weeks, it does raise concerns about the state of Australia's IPO market and whether or not the door still remains open for companies to raise equity on the ASX.
