Australian miners resort to 'backdoor listings' as IPO market languishes
Australia's mining and oil companies have increasingly resorted to disingenuous "backdoor listings", as the country's IPO market continues to languish.
The Wall Street Journal reports that in response to a lull in the Australian IPO market miners had increasingly resorted to reverse take-overs as a "back-door" means of securing capital for resource exploration.
A reverse takeover involves the acquisition of a private company possessing meaningful assets by a listed company, which is often a shell company devoid of value.
This essentially enables the private company to become a listed company without a formal IPO, availing itself of the shell company's funds.
Backdoor listings have soared in the past several years as funds for mining IPO's became scarce once commodities prices plunged.
From 2010 to 2012 the total value of new mining listings plunged by 84% according to data from Dealogic, while during the same period reverse mergers by miners rose from 10% of the total to 76%.
Yet this convenient channel of funds could soon dry up, however, as corporate shells become scarcer and pricier.
According to Brian McMaster, director of Perth-based corporate advisory Garrison Capital, good corporate shells are becoming more difficult to source, as well as pricing themselves out of competition against the traditional IPO route.