Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

Vulcan Steel Limited (Vulcan), a pure-play value-added steel distributor and processor, aims to raise around US$273m (A$371m) in its Australia and NZ IPO.Vulcan operates as a link between steel producers and bulk traders, and end-users. It has a network of 29 operating sites, 16 in Australia and 13 in New Zealand, through which it services over 7,000 customers, as of Jun 21. Vulcan distributes steel products, including carbon steel, stainless steel and engineering steel to a diversified customer base including customers in engineering, manufacturing, fabricating, transport, mining and other segments. It also provides value-added processing services for steel coils, steel plates, stainless steel and engineering steel.The company has put in a steady performance, especially in FY21 with margins hitting recent highs, and expects it to continue in FY22. However, its suppliers, the steel manufacturers, are trading at much cheaper valuation and analysts are building in a decline in their earnings for FY23 as they expect earnings to decline along with steel prices.

Vulcan Steel Limited (Vulcan), a pure-play value-added steel distributor and processor, aims to raise around US$273m (A$371m) in its Australia and NZ IPO.Vulcan operates as a link between steel producers and bulk traders, and end-users. It has a network of 29 operating sites, 16 in Australia and 13 in New Zealand, through which it services over 7,000 customers, as of Jun 21. Vulcan distributes steel products, including carbon steel, stainless steel and engineering steel to a diversified customer base including customers in engineering, manufacturing, fabricating, transport, mining and other segments. It also provides value-added processing services for steel coils, steel plates, stainless steel and engineering steel.The company has put in a steady performance, especially in FY21 with margins hitting recent highs, and expects it to continue in FY22. However, its suppliers, the steel manufacturers, are trading at much cheaper valuation and analysts are building in a decline in their earnings for FY23 as they expect earnings to decline along with steel prices.

Vulcan Steel Limited IPO - Past Performance Looks Fine but Margins Might Be at Cyclical Highs

Transurban Group / Equity Capital Markets

<div>
Transurban aims to raise around US$3.2bn (A$4.2bn) via a mix of entitlement offer and private placement to AustralianSuper to fund the acquisition of the remaining 49% stake in WestConnex.
We have covered some of the prior entitlement offer related shortfall bookbuilds in the past:
</div><div><ul style="list-style-type: disc;">
<li><a href="https://www.smartkarma.com/insights/acquisition-appears-attractive-and-track-record-remains-stellar-but-upside-seems-limited" target="_blank" rel="noopener">Nov 2015: Acquisition Appears Attractive and Track Record Remains Stellar but Upside Seems Limited</a></li>
<li>Dec 2017: <a href="https://www.smartkarma.com/insights/transurban-entitlement-offer-uncertainty-abound" target="_blank" rel="noopener">Transurban Entitlement Offer - Uncertainty Abound</a>
</li>
<li>Sep 2018: <a href="https://www.smartkarma.com/insights/transurban-entitlement-and-short-fall-long-term-value-accretion-with-short-term-earnings-drag" target="_blank" rel="noopener">Transurban Entitlement and Short-Fall - Long-Term Value Accretion with Short-Term Earnings Drag</a> and <a href="https://www.smartkarma.com/insights/transurban-retail-short-fall-quick-take-much-better-positioned-now" target="_blank" rel="noopener">Transurban Retail Short-Fall - Quick Take - Much Better Positioned Now</a>
</li>
<li>Aug 2019: <a href="https://www.smartkarma.com/insights/transurban-retail-short-fall-quick-take-much-better-positioned-now" target="_blank" rel="noopener">Transurban Retail Short-Fall - Quick Take - Much Better Positioned Now</a>
</li>
</ul></div>In this note, we will talk about the deal dynamics and run the deal through our ECM framework.


Transurban aims to raise around US$3.2bn (A$4.2bn) via a mix of entitlement offer and private placement to AustralianSuper to fund the acquisition of the remaining 49% stake in WestConnex.
We have covered some of the prior entitlement offer related shortfall bookbuilds in the past:

Nov 2015: Acquisition Appears Attractive and Track Record Remains Stellar but Upside Seems Limited
Dec 2017: Transurban Entitlement Offer - Uncertainty Abound

Sep 2018: Transurban Entitlement and Short-Fall - Long-Term Value Accretion with Short-Term Earnings Drag and Transurban Retail Short-Fall - Quick Take - Much Better Positioned Now

Aug 2019: Transurban Retail Short-Fall - Quick Take - Much Better Positioned Now

In this note, we will talk about the deal dynamics and run the deal through our ECM framework.

Transurban Entitlement and Shortfall - Well Flagged Deal for a Well Known Asset

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<h3>The SHORT &amp; SWEET</h3><ul>
<li>Australian banks are seeing or are going to see sharp hikes in H1 dividends this year despite APRA guidance to be prudent with capital decisions. </li>
<li>APRA changed its guidance on 29 July. </li>
<li>ANZ had announced a decent-sized buyback earlier in July and NAB announced one on 30 July. </li>
<li>Others are expected to announce buy-backs in August.</li>
</ul><h3>The Longer Introduction</h3>In April 2020 when markets were crashing and there was tremendous uncertainty about what ravages covid might bring to every sector of the economy, <a href="https://www.smartkarma.com/entities/national-australia-bank-ltd" target="_blank" data-smartkarma-citation="entities:15:1" rel="noopener">National Australia Bank (NAB AU)</a> slashed its dividend and launched a A$3.5bn capital raise. Other companies did the same, but the other major banks avoided a capital raise in 2020 because they had either raised equity earlier (all four majors raised equity in 2015, but <a href="https://www.smartkarma.com/entities/westpac-banking-corp" target="_blank" data-smartkarma-citation="entities:444:1" rel="noopener">Westpac Banking (WBC AU)</a> also raised in Nov 2019) or they cut or eliminated an interim dividend (ANZ and CBA cut theirs, and Westpac eliminated their div for H1 2020 entirely).For NAB, the capital raise was an institutional share placement of A$3bn and a A$500mm Share Purchase Plan (SPP) targeting individual shareholders. The SPP was well-received, priced at A$14.15/share - the same price as the placement - so when books closed a month later and the market price was 10% higher, demand had been strong enough that the SPP was boosted by A$750mm to A$1.25bn. That was probably overly cautious at the time, but it was a huge gift to shareholders. A week after the SPP shares started trading on 2 June, the shares were changing hands above A$20/share. Fast forward almost a year later to the 6 May release of H1 earnings and the bank said it had too much capital with its Common Equity Tier 1 ratio at 12.37-12.40%. It noted it intended to take action to lower that but stay above APRA's Unquestionably Strong benchmark of 10.5%. This came despite APRA's <a href="https://www.apra.gov.au/news-and-publications/apra-issues-guidance-to-authorised-deposit-taking-institutions-and-insurers" target="_blank" rel="noopener">guidance</a> in early April of 2021 that it expected deposit-taking institutions it expected they (and other financial institutions) "limit discretionary capital distributions in the months ahead, including deferrals or prudent reductions in dividends." The 7 April <a href="https://www.apra.gov.au/sites/default/files/2020-04/Capital%20management.pdf" target="_blank" rel="noopener">letter</a> (pdf) on Capital Management said,<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/221/292/original/Screenshot+2021-07-31+at+3.03.52+PM.png?1627715057" class="editor-image img-responsive" data-smartkarma-image-id="221292"></figure></section>Interestingly, <a href="https://www.smartkarma.com/entities/australia-and-new-zealand-banking-group-anz" target="_blank" data-smartkarma-citation="entities:443:1" rel="noopener">Australia and New Zealand Banking Group (ANZ) (ANZ AU)</a> announced a A$1.5bn buyback - ~2% of market cap - on 19 July and the stock bounced $1/share to A$28/share over a few days. This was obviously discussed with APRA but ANZ CEO Shayne Elliott had said on 5 May when reporting a 126% increase in H1 profit helped by writebacks, and a jump in H1 div,  that the Australian economy was booming and said, “Australia is in really good shape in where we sit today," and he quite clearly laid out the case for a buyback then.<blockquote>
 “We have an embarrassment of riches, if you will, in terms of excess capital.”
“Clearly the only path to get to 10.8, putting aside almost unimaginable growth in our balance sheet, would be some sort of capital management activity,”
ANZ Bank CEO Shayne Elliott (5 May 2021)
</blockquote>ANZ was first off the block.On 29 July, APRA <a href="https://www.apra.gov.au/news-and-publications/apra-updates-guidance-on-capital-management-for-banks-and-insurers" target="_blank" rel="noopener">updated its guidance</a> and the <a href="https://www.apra.gov.au/sites/default/files/2020-07/Letter%20to%20authorised%20deposit-taking%20institutions%20-%20Capital%20management.pdf" target="_blank" rel="noopener">new letter</a> on capital management eliminates the strict requirement but maintains guidance on 50% dividend payout. <h3>New NAB News</h3>On Friday 30 July 2021, <a href="https://www.smartkarma.com/entities/national-australia-bank-ltd" target="_blank" data-smartkarma-citation="entities:15:1" rel="noopener">National Australia Bank (NAB AU)</a> filed an <a href="https://www.asx.com.au/asxpdf/20210730/pdf/44yt960pv5csx8.pdf" target="_blank" rel="noopener">announcement</a> with the ASX for an on-market buyback for A$2.5bn of its shares, which is about 3% of current market cap, as part of its effort to move its Common Equity Tier 1 ratio to 10.75-11.25%. Under Corporations Act 2001, a company has to announce an on-market buyback to ASIC 14 days before starting. The buyback is expected to start in mid-late August and go through a period as long as end July 2022. That ASIC <a href="https://www.asx.com.au/asxpdf/20210730/pdf/44ytb9zm9cfdpn.pdf" target="_blank" rel="noopener">lodgment</a> was made Friday too. Because it is an on-market buy back under the limits of the 10/12 rule (&gt;10% of shares to be bought back in &lt;12 months), no further details are required to be given out.<blockquote>
The timing and actual number of shares purchased under the buy-back will depend on market conditions, the prevailing share price and other considerations....
In addition to the on-market buy-back announced today, NAB intends to purchase shares on-market to satisfy Dividend Reinvestment Plan requirements over the buy-back period...
The exact nature, amount, and timing of any further capital returns beyond the $2.5 billion on-market buy-back announced today, will be dependent on market conditions and capital outlook.
</blockquote>Despite the still strict-sounding guidance from APRA, the organisation conducted stress tests and released results last December saying even in "severe downside scenario" where growth dropped 15% and unemployment rose 13% and house prices fell 30%, the major banks would all pass the minimum capital requirement with room to spare.The fact that these two banks have announced buybacks indicates APRA is comfortable with where banks stand, suggesting that the even more capitaltastic Westpac and CBA are likely to announce buybacks next month with earnings.

The SHORT &amp; SWEET
Australian banks are seeing or are going to see sharp hikes in H1 dividends this year despite APRA guidance to be prudent with capital decisions. 
APRA changed its guidance on 29 July. 
ANZ had announced a decent-sized buyback earlier in July and NAB announced one on 30 July. 
Others are expected to announce buy-backs in August.
The Longer IntroductionIn April 2020 when markets were crashing and there was tremendous uncertainty about what ravages covid might bring to every sector of the economy, National Australia Bank (NAB AU) slashed its dividend and launched a A$3.5bn capital raise. Other companies did the same, but the other major banks avoided a capital raise in 2020 because they had either raised equity earlier (all four majors raised equity in 2015, but Westpac Banking (WBC AU) also raised in Nov 2019) or they cut or eliminated an interim dividend (ANZ and CBA cut theirs, and Westpac eliminated their div for H1 2020 entirely).For NAB, the capital raise was an institutional share placement of A$3bn and a A$500mm Share Purchase Plan (SPP) targeting individual shareholders. The SPP was well-received, priced at A$14.15/share - the same price as the placement - so when books closed a month later and the market price was 10% higher, demand had been strong enough that the SPP was boosted by A$750mm to A$1.25bn. That was probably overly cautious at the time, but it was a huge gift to shareholders. A week after the SPP shares started trading on 2 June, the shares were changing hands above A$20/share. Fast forward almost a year later to the 6 May release of H1 earnings and the bank said it had too much capital with its Common Equity Tier 1 ratio at 12.37-12.40%. It noted it intended to take action to lower that but stay above APRA's Unquestionably Strong benchmark of 10.5%. This came despite APRA's guidance in early April of 2021 that it expected deposit-taking institutions it expected they (and other financial institutions) "limit discretionary capital distributions in the months ahead, including deferrals or prudent reductions in dividends." The 7 April letter (pdf) on Capital Management said,Interestingly, Australia and New Zealand Banking Group (ANZ) (ANZ AU) announced a A$1.5bn buyback - ~2% of market cap - on 19 July and the stock bounced $1/share to A$28/share over a few days. This was obviously discussed with APRA but ANZ CEO Shayne Elliott had said on 5 May when reporting a 126% increase in H1 profit helped by writebacks, and a jump in H1 div,  that the Australian economy was booming and said, “Australia is in really good shape in where we sit today," and he quite clearly laid out the case for a buyback then.
 “We have an embarrassment of riches, if you will, in terms of excess capital.”
“Clearly the only path to get to 10.8, putting aside almost unimaginable growth in our balance sheet, would be some sort of capital management activity,”
ANZ Bank CEO Shayne Elliott (5 May 2021)
ANZ was first off the block.On 29 July, APRA updated its guidance and the new letter on capital management eliminates the strict requirement but maintains guidance on 50% dividend payout. New NAB NewsOn Friday 30 July 2021, National Australia Bank (NAB AU) filed an announcement with the ASX for an on-market buyback for A$2.5bn of its shares, which is about 3% of current market cap, as part of its effort to move its Common Equity Tier 1 ratio to 10.75-11.25%. Under Corporations Act 2001, a company has to announce an on-market buyback to ASIC 14 days before starting. The buyback is expected to start in mid-late August and go through a period as long as end July 2022. That ASIC lodgment was made Friday too. Because it is an on-market buy back under the limits of the 10/12 rule (&gt;10% of shares to be bought back in &lt;12 months), no further details are required to be given out.
The timing and actual number of shares purchased under the buy-back will depend on market conditions, the prevailing share price and other considerations....
In addition to the on-market buy-back announced today, NAB intends to purchase shares on-market to satisfy Dividend Reinvestment Plan requirements over the buy-back period...
The exact nature, amount, and timing of any further capital returns beyond the $2.5 billion on-market buy-back announced today, will be dependent on market conditions and capital outlook.
Despite the still strict-sounding guidance from APRA, the organisation conducted stress tests and released results last December saying even in "severe downside scenario" where growth dropped 15% and unemployment rose 13% and house prices fell 30%, the major banks would all pass the minimum capital requirement with room to spare.The fact that these two banks have announced buybacks indicates APRA is comfortable with where banks stand, suggesting that the even more capitaltastic Westpac and CBA are likely to announce buybacks next month with earnings. 

Aussie Bank Buyback Season Starts - Expect A$12-15bn and Funky Flows

Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Thematic (Sector/Industry)

Australian Financial stocks are a lightly held.  Just 17% of the global funds in our analysis hold a position, with managers running a net underweight for the last decade.  They remain the 5th largest country/sector underweight globally.However the decline has started to reverse.  Buying in stocks such as <a href="https://www.smartkarma.com/entities/australia-and-new-zealand-banking-group-anz" target="_blank" data-smartkarma-citation="entities:443:1" rel="noopener">Australia and New Zealand Banking Group (ANZ) (ANZ AU)</a> and <a href="https://www.smartkarma.com/entities/zip-co-ltd-3708706d-4978-4e29-acbc-d9702b971da9" target="_blank" data-smartkarma-citation="entities:29126:1" rel="noopener">Zip Co Ltd (Z1P AU)</a> has placed active fund ownership on an upward trajectory for the first time in 5-years.Compared to Financials positioning in other countries, Australian Financials are lightly held, especially compared to US and India Financials which saw a strong resurgence post COVID.  If we add in to the mix the relatively large underweight and the fact that there is a Value rotation underway, it wouldn't be out of the question to expect Australian Financials to capture further inflows.

Australian Financial stocks are a lightly held.  Just 17% of the global funds in our analysis hold a position, with managers running a net underweight for the last decade.  They remain the 5th largest country/sector underweight globally.However the decline has started to reverse.  Buying in stocks such as Australia and New Zealand Banking Group (ANZ) (ANZ AU) and Zip Co Ltd (Z1P AU) has placed active fund ownership on an upward trajectory for the first time in 5-years.Compared to Financials positioning in other countries, Australian Financials are lightly held, especially compared to US and India Financials which saw a strong resurgence post COVID.  If we add in to the mix the relatively large underweight and the fact that there is a Value rotation underway, it wouldn't be out of the question to expect Australian Financials to capture further inflows.

Australian Financials:  Big Underweight (Finally) Finding Some Love?

Silver Point

Thomas J. Monaco

Independent Insight Provider

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

National Australia Bank / Equity Bottom-Up

*AML/CTF Violations: National Australia Bank (NAB.AU) [NAB] announced that it was informed by the Australian Transaction Reports and Analysis Centre (AUSTRAC) that it had identified “potential serious and on-going non-compliance” with NAB's compliance with the Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) Act 2006, and the AML/CFT Rules 2007; and*Fundamental Challenges Too: AML/CTF is not NAB’s only challenge. NAB's 1H21 NIM declined another 3 bp HOH to 1.74%, and will remain challenged from this low rate environment, competitive pressures, and higher mortgage concentrations well into FY 2022. In addition, NAB’s loans 90+ days past due loans increased over 30% HOH due to challenges from Australian mortgage customers exiting loan deferrals.

*AML/CTF Violations: National Australia Bank (NAB.AU) [NAB] announced that it was informed by the Australian Transaction Reports and Analysis Centre (AUSTRAC) that it had identified “potential serious and on-going non-compliance” with NAB's compliance with the Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) Act 2006, and the AML/CFT Rules 2007; and*Fundamental Challenges Too: AML/CTF is not NAB’s only challenge. NAB's 1H21 NIM declined another 3 bp HOH to 1.74%, and will remain challenged from this low rate environment, competitive pressures, and higher mortgage concentrations well into FY 2022. In addition, NAB’s loans 90+ days past due loans increased over 30% HOH due to challenges from Australian mortgage customers exiting loan deferrals.

Australia

Australia and New Zealand Banking Group Limited provides banking services. The Bank offers accounts checking, savings  deposits, money market, mortgage, and term loans services, as well as card facilities and Internet  banking services. Australia and New Zealand Banking Group serves customers in New Zealand and Australia.

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Australia & New Zealand Bankin (AN3 AU)

Vulcan Steel Limited IPO - Past Performance Looks Fine but Margins Might Be at Cyclical Highs

Vulcan Steel Limited, a pure-play value-added steel distributor and processor, aims to raise around US$273m (A$371m) in its Australia and NZ IPO.

Sumeet Singh

Transurban Entitlement and Shortfall - Well Flagged Deal for a Well Known Asset

Transurban aims to raise around US$3.2bn (A$4.2bn) via a mix of entitlement offer and private placement to AustralianSuper to fund the acquisition...

Sumeet Singh

Aussie Bank Buyback Season Starts - Expect A$12-15bn and Funky Flows

Aussie Bank Buyback Season is starting. ANZ a week plus ago. NAB on Friday. CBA and WBC likely to return franking credits via off-market buybacks....

Travis Lundy

Australian Financials: Big Underweight (Finally) Finding Some Love?

Australian Financial stocks are the 5th largest country/sector underweight globally. But is their decade long decline starting to reverse?

Steven Holden

National Australia Bank - Nabbed

NATIONAL AUSTRALIA BANK: NAB was informed by AUSTRAC that it had identified “potential serious and on-going non-compliance” with NAB's compliance...

Thomas J. Monaco

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