DigiCo disappointment a dampener on Virgin Australia float plan

IThe DigiCo Infrastructure REIT has failed to light up investor enthusiasm.

There will be plenty of disappointment this week from the 13 brokers that worked for David Di Pilla’s camp on his HMC Capital-backed DigiCo Infrastructure REIT.

But perhaps those most deflated about its bombed-out initial public offering are those on the ticket for Virgin Australia.

Expectation has been mounting that a listing of the Australian carrier could be sooner rather than later.

Private equity owner Bain Capital would want to capitalise on the record high share price of Qantas and the financial advantage of the domestic duopoly it is part of in the Australian airline industry, now that regional carriers Rex and Bonza are out of the way.

The theory has been that after it clears its deal with Qatar, Virgin Australia announces executive Paul Jones as its new boss to replace Jayne Hrdlicka, and then it hits the go button on its IPO.

But that would have been all based on the assumption that DigiCo went well.

The hype before the data centre fund listed suggested that it would, even though many infrastructure and telco investors were behind the scenes quietly cautioning that Mr Di Pilla’s HMC Capital had overpaid for the assets.

But it was all based on the huge demand from retail shareholders and the assumption that passive funds would need to buy in because of its size, which would push up the price.

So what went wrong?

Retail investors expected a great performance on day one and could then sell out, but they had not done their homework and it fell – and momentum built from there.

It’s that simple, said one market expert.

DigiCo shares have now plunged 14 per cent since it listed on Friday last week, after ending its first day of trade down close to 9 per cent.

And that was despite 13 brokers paid on the deal and former star equities investment banker Robbie Vanderzeil working for the HMC transaction as its head of capital solutions.

But sources say everyone is blaming everyone else.

The message was to keep the local fund managers short of stock by not allocating too much so they would need to buy into the deal on the listing on day one.

But clearly, they just were not that taken with it.

The biggest difference with Guzman y Gomez, which listed strongly earlier in the year and has at least doubled in price since, was the sheer size of the deal.

This DigiCo IPO was close to $2bn, whereas the Mexican fast food chain was $335.1m.

Even though the DigiCo result wasn’t great for the Virgin deal, one market expert believes that Bain Capital will try to float anyway. Yet it’s not expected to be sold cheaply.

Already, Qatar has bought 25 per cent of the carrier for about $750m, which places a valuation of about $3bn on Virgin Australia.

One could argue that because it was a sale of a strategic stake, a premium could be justified; but Bain will now expect this valuation of the carrier when a listing is planned next year — the same value it was hoping for last time it thought about listing.

Working on the DigiCo float were Goldman Sachs, JPMorgan, Macquarie Capital, UBS, Ord Minnett, Morgans, Bell Potter, Canaccord, Shaw and Partners E&P, NAB, Wilsons and CBA.

For Virgin Australia, Barrenjoey, Goldman Sachs and UBS are working on the listing, along with retail brokers Wilsons, Ord Minnett and Shaw and Partners.

Qantas is trading at 8.8 per cent its forecast annual net profit for the coming financial year and its share price closed at $8.90, up from about $5.40 at the start of the year.