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ASX draws foreign players and others to list

Nicki Bourlioufas  |  24 Oct 2017Text size  Decrease  Increase  |  
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The ASX is attracting international technology and other companies seeking to conduct initial public offerings, with companies drawn here by Australia's huge investment pool and robust regulatory oversight.

 

By number of tech IPOs in 2016, the ASX ranked third among exchanges in the world and ahead of Nasdaq for the second year running. In the 2016-17 financial year, the number of technology listings totalled 40 out of a total 152 listings, accounting for more than one quarter of the market.

There are now over 210 technology companies listed on the ASX, making it the third largest sector, according to Max Cunningham, the ASX's executive general manager of listings and issuer services.

"The total number of new listings in 2016-17 was the highest in six years and one of the highest in the English-speaking exchange world," says Cunningham.

"In addition, there were 39 foreign listings in 2016-17, which was down on the high of 50 in 2015-16, but the number has been consistently over 30 in recent years. Before that, it was only a trickle each year."

Twenty-eight companies have listed on the ASX for the three months to 30 September, compared to 33 for the same period last year, representing a slight decline. Reflecting this, the amount of initial capital raised across the period has fallen 20 per cent to $3.3 billion, down from $4.1 billion last year.

But the total capital raised, which includes secondary raisings from existing listed companies, is 3 per cent higher, climbing to $18.8 billion from $18.3 billion 12 months ago, says the ASX.

According to Marcus Ohm, a partner at HLB Mann Judd and IPO expert, IPO activity has slowed this year in terms of capital raised and there is some saturation in the market among investors, including for new technology listings.

"I think the market experienced such a substantial amount of tech IPOs in 2015 and 2016 that there are now a lot more companies listed and a lot of choice for investors," says Ohm.

"This may make capital attraction difficult for new market entrants particularly given the resources sector has experienced a recovery and thus now provides more alternatives for investors' capital allocations.
 
"Recent years have seen a lot of tech listings from both traditional front door IPOs and backdoor listings through dormant exploration entities, and it may be that the market in terms of tech IPOs has reached a reasonable level in terms of number of companies and speculative dollars available."

 

Total ASX-listed technology companies


chart

 

Value of technology stocks by sub-sector


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Source: ASX

 

New listing rules, which have raised the standard for admission to the ASX market, may have also had an impact on the decision of smaller, less mature companies to list. The ASX's Cunningham says new listings rules introduced in December 2016 have encouraged some smaller companies, including technology players, to seek pre-IPO capital rather than a public listing.

"We tweaked listing rules in December 2016 to lift the bar for IPOs and we've encouraged very early-stage companies to seek pre-IPO funds from sophisticated investors before they come to market and list on the ASX," says Cunningham.

Apart from locals, several foreign companies have listed this year on the ASX, including several from Israel, New Zealand, and even from Germany. The also include companies too small for their home exchanges, such as the US, Israel, and Hong Kong.

In the US public markets, the traditional home of tech IPOs, companies below US$1 billion market cap often struggle to attract investor interest and need to be even larger to enter the major indices, with a minimum market capitalisation requirement for the S&P 500 of US$5.3 billion.

Sixteen Israeli companies have listed their shares on the ASX, including eight new listings in 2016 and four this year so far, including G Medical Innovations (ASX: GMV), Elsight (ASX: ELS), a security and surveillance data firm, Mobilicom (ASX: MOB), and Esense-Lab (ASX: ESE).

Several factors have drawn foreign companies to the ASX and Australia, which has one of the world's largest pools of investable funds.

"We have a single board here and companies with a market capitalisation of $300 million can list on the ASX and be included in one of the major indices, compared to the US or Europe where they would struggle to attract institutional investors and be included in an index," says Cunningham.

Adds Marcus Ohm: "Australia is a very growth-company-friendly environment in terms of the initial listing requirements on ASX. A company does not need a track record of profitability or positive cash flows to list in Australia--there is the alternative of a minimum net assets test--which is a differentiator for the ASX and is a requirement for many other markets."

"This makes an Australian listing relatively attractive for tech companies which are early on the development curve and therefore in need of funding."

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Nicki Bourlioufas is a Morningstar contributor. This is a financial news article to be used for non-commercial purposes and is not intended to provide financial advice of any kind. Opinions expressed herein are subject to change without notice and may differ or be contrary to the opinions or recommendations of Morningstar as a result of using different assumptions and criteria.

© 2017 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.

© 2021 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

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