KEY POINTS:
Rams Home Loans Group, an Australian mortgage lender that sold stock last month, said the shakeout in global debt markets might cut earnings.
Its shares slumped 23 per cent, making it the nation's worst initial public offering this year.
The shares closed down A35c, or 20 per cent, to A$1.40, extending the stock's decline to 44 per cent since listing on July 27.
The impact on the company's June profit forecast "is likely to be material" because of rising financing costs, Rams said yesterday. The Sydney-based lender, which doesn't take deposits, gets almost half the funds for its mortgages by selling short-term debt in the US.
"Companies like Rams are heavily dependent on what's happening in the credit markets, and a major global event like this one is going to hurt," said Peter Morgan, who manages A$3 billion ($3.44 billion)at 452 Capital in Sydney. "Rams won't be the last Australian company to feel it, and you can multiply it by a hundred overseas."
Rams, with A$14.2 billion of loans, is the first Australian mortgage company to warn profit may be hurt by the deepening crisis in credit markets. Australian hedge funds Absolute Capital Group and Basis Capital Fund Management have already been caught in the rout and are trying to avoid selling assets at distressed prices.
The lender included a debt-market crisis among a list of potential risks in a June 27 document for prospective investors ahead of its A$695 million share sale. UBS managed and underwrote the offering, when Rams forecast a 35 per cent gain in 2008 annual profit to A$58.6 million.
Rams, which has 80 branches in New South Wales, Victoria, Queensland and Western Australia, said it had no investments in US sub-prime loans. All the company's loans had 100 per cent mortgage insurance, it said.
Analysts at Credit Suisse cut their profit estimate for Rams by between 10 per cent and 15 per cent, citing the problems in debt markets. Still, the broker raised its rating for the stock to "outperform" from "neutral" following the share fall.
- Bloomberg
