Sydney View: Scotched sales spell 'crunch'

By GILES PARKINSON*

If there were any doubts that the great asset bubble of the 1990s had come to a crunching end in Australia, they were certainly dispelled during the past week with the cancellation of two asset sales worth more than $A5 billion.

The $2 billion-plus float of Vodafone Pacific, just months ago touted as the biggest and most exciting share offer of 2000, was pulled on Thursday because of what the company's advisers described as "volatile market conditions."

A more succinct explanation is that telcos are suddenly on the nose with international investors.

Vodafone simply couldn't get a decent enough price.

It had tried touting the share offer at a price/earnings ratio of around 22 times operating profits, before winding that back to around 17 times. Even at that price there were few takers.

It was a similar story for Comvergent Telecommunications, an Australian offshoot of US group RSL Communications, which had its 100 per cent share offering canned a day earlier.

It had wanted to raise around $370 million.

Victoria's Government has long boasted of the $26 billion it raised through the sale of its power utilities.

Now the buyers of those assets are asking themselves what possessed them to pay such inflated prices.

American group GPU has been trying for the past few months to sell two assets that it bought for $3.65 billion in 1997: distribution company PowerNet and GasNet.

The most it could attract fell short of $2.8 billion before the sale was pulled on the same day as the Vodafone float.

GPU, like other international power groups, is trying to flog its Australian investments to either help pay for assets bought elsewhere, or to try to stop a flagging share price.

Another $8 billion worth of energy assets is on the market, and all are likely to be sold for substantial losses, if at all.

Another US group, CMS, was part of a syndicate that paid a massive $4.8 billion for the Loy Yang A power station.

It wants out, but the chances of it seeing much of the $650 million of equity it put into Loy Yang seem remote.

Meanwhile, Horizon Energy, a listed vehicle that holds a 25 per cent equity stake in Loy Yang, is now capitalised at a mere $70 million.

Add in some unfavourable foreign exchange movements and some likely penalties from the refinancing of $3.5 billion in debt, and CMS investment, in what it once saw as the "jewel in its crown," is fast eroding away towards zero.

One of the biggest casualties from this new mood of sobriety has been the merchant bankers, who have feasted on massive fees in recent years as more than $80 billion of assets changed hands.

The cancellation of the Vodafone Pacific and GPU sales, and doubts over other sales in the pipeline, could cause $50 million or more in potential fees to simply evaporate."

That's a lot of holiday homes and trips with the family to Disneyland.

But do they need our sympathy?

Macquarie Bank, the only listed investment bank of any size on the Australian stock market, on Friday announced a 27 per cent lift in net profits for the year to March 31 to $210 million, and that's after the fat bonus fees have been paid.

Macquarie is a bell-wether for the health of the investment banking industry. In the past year, it has been fit as a fiddle, as its 48 per cent lift in expenses to $880 million suggests.

Staff numbers rose from 3200 to 4000 as a result of the $100 million purchase of BT Funds Management, but, even allowing for office rentals and lunches, a quick calculation shows that represents an average salary (including bonus) of around $200,000.

* Giles Parkinson is deputy editor of the Australian Financial Review.