$3.2bn Latitude Financial float flops again

Australian fund managers have sent a signal to private equity after Latitude Financial’s $3.2bn IPO ­was shelved.

Latitude Financial boss Ahmed Fahour. Picture: Stuart McEvoy.

Australian fund managers have sent a strong signal to private equity players about the quality of companies looking to list on the ASX, after Latitude Financial ­failed to secure enough support for its $3.2bn IPO in what was to be the largest float of the year.

The IPO for the non-bank lender was pulled on Tuesday night, as revealed by DataRoom online, following the close of its bookbuild and after the business was repriced below its original IPO range. The Australian’s Margin Call column on Tuesday afternoon revealed the monster IPO was “hanging in the balance”.

The hopes of a number of groups looking to list this year had been riding on the success of Latitude’s IPO plans for this Friday in a year when few floats have eventuated.

Marking the second time Latitude has pulled its float, its private equity owners, including Kohlberg Kravis Roberts, Varde Partners and Deutsche Bank, were believed to be assessing their options on Tuesday night.

It is understood that official word of the deal not proceeding will be made on Wednesday morning, but a source told The Australian the deal was off unless “a miracle happens”.

Run by former Australia Post boss Ahmed Fahour, Latitude provides personal and in-store credit card loans to stores such as Harvey Norman, as well as a buy-now-pay later service. Latitude had been expected in the past week to price its IPO at the bottom end of its price range.

Read more | Fahour loses potential $22.5m payday

The view of some fund managers was that the deal was overpriced, with shares in rival Flexigroup available at a 25 per cent discount to what Latitude was offering.

One fund manager, who declined to be named, said he had given the Latitude float a wide berth given the company’s relatively high debt levels and renewed signs of consumer stress across other ASX stocks.

Investor jitters were heigh­tened on Tuesday after several profit downgrades were linked to weak consumer and business sentiment. This sector remains key to Latitude’s business.

Updating investors at its annual meeting, furniture retailer Nick Scali said its monthly store traffic was as much as 15 per cent lower during the first three months of the financial year, hitting like-for-like sales by 8 per cent and prompting downgrades to its profit guidance. Nick Scali’s shares were sold down 14 per cent, dragging down several ASX-listed consumer stocks including JB Hi-Fi and Harvey Norman.

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Elsewhere, Southern Cross Media shares were pummeled after the broadcaster warned first-half earnings would be down as much as 27 per cent due to weak and volatile advertising markets.

“The weak consumer and business sentiment are the key drivers, and so businesses are trying to determine whether it’s the right time for them to invest at the moment. They’re either differing, or they’re holding back or they’re deciding to go with different-sized campaigns,” Southern Cross financial chief Nick McKechnie said.

Earlier Tuesday as the IPO bookbuild took place, Latitude sent a message to the market suggesting that early indications of demand exceeded its offer size.

This was assuming that $330m of the deal was allocated to retail investors, which had been about 25 per cent of the entire deal.

Market analysts had always described a move to raise an additional $900m from Australian and international institutions as an incredibly difficult exercise.

Retail investors had been asked to confirm their broker firm allocations over the course of Tuesday.

However, it is understood that demand did not come from long term holders of the stock and fears had emerged that the share price of the company would collapse on the day it debuted.

On Monday, Latitude Financial Group repriced its initial public offering to $1.78 per share, taking its market value to $3.17bn.

The raising size was also scaled back to about $1bn.

That price equates to 11 times forecasted net cash profit and a 5.8 per cent yield.

However, Australian fund managers had expressed a view that the company needed to be priced at 10 times or less.

Only before the weekend on Friday, the company had locked in its IPO price at $2 per share ahead of the bookbuild for the IPO this week.

At that time, the group also set the raising size at the bottom of its range at $1.245bn and the dividend yield was to be 5.2 per cent.

The prospectus had the company valued at between 12 and 13.9 times Latitude’s pro forma forecasted cash net profit for the 2020 financial year.

The shelving of the Latitude IPO for a second time, delivers a heavy blow to an already fragile market for ASX listings.

It follows the IPO of MPC Kinetic being parked last week after the offer was downsized on the back of soft demand. Companies in the ASX listing pipeline including Onsite Rentals, Tyro Payments and Pepper Australia will be wanting to gauge the investor mood ahead of pushing ahead with their deals.

Latitude had earlier planned to launch a bookbuild with shares to be sold between $2 per share and $2.25, equating to a market value range of between $3.556bn and $4bn.

The business consists of the former GE Australian and New Zealand consumer lending business purchased by KKR, Varde Partners and Deutsche Bank.

Working as joint lead managers on the IPO were Goldman Sachs, Macquarie Capital and UBS, while Insight Capital advised Latitude’s shareholders.

The group was initially planning to raise between $1.24bn and $1.4bn.

Desipte the shelving of Latitude, property sector floats are still getting away. Demand for stocks with high yields drove the strong debut by retail property landlord HomeCo as it listed on Monday. It closed almost 12 per cent above its issue price on its first day but eased back about 2 per cent on Tuesday.

Investors chased the company, which is overhauling former Masters hardware sites to open new shopping centres that sport “convenience-style” retail outlets, partly as it is backed by canny investors including co-founder and executive chairman David Di Pilla as well as the families behind Spotlight and Chemist Warehouse and Marc Besen joining as a cornerstone investor.

The next test for the IPO market in property will be Property­Guru Group, which opens its retail offer on Wednesday, and funds manager PrimeWest, which is raising about $100m.