Australian money managers could get squeezed out of the $4 billion-plus float of Medibank Private in favour of foreign investors, local fund managers have warned.
Subscribe now for unlimited access.
$0/
(min cost $0)
or signup to continue reading
Amid strong interest from retail shareholders, fund managers expect the allocation of shares to institutional investors to be hotly contested.
The tension means very few are prepared to air contrary views on the sale of the health insurer, which could eclipse the $4.6 billion float of rail freight business QR National in 2010 as the biggest privatisation since Telstra.
But a number of fund managers are concerned at reports that investment banks marketing the float will receive higher fees for selling shares to international funds, as revealed by Fairfax Media.
"I was reading with concern ... that the JLMs get a higher payout for putting international shareholders in the float," one local investor said.
Another fund manager said he believed the higher fees were a lever to force domestic institutions to pay to play.
"The main objective, I suspect, will be to use international demand to push up the price on the issue," he said.
One fund manager pointed to the partial privatisation of New Zealand company Meridian Energy. The initial public offering last year had the same line-up of banks working on the deal as Medibank – with the New Zealand government advised by Lazard, and Deutsche Bank, Goldman Sachs and Macquarie Capital working as JLMs.
The float had a mandate to sell 85 per cent of shares to New Zealand investors. The fund manager claimed the final advice from Lazard to the government on the 15 per cent allocation to offshore funds had a preference for international investors over Australian funds. Bank of New York Mellon Corp turned up with 4 per cent of the Meridian shares on offer.
"The question mark is, what is Lazard's view towards the allocation [of Medibank shares], particularly between domestic and international investors?" the manager said.
A representative from Lazard declined to comment.
A source from the sale camp said the concerns raised by fund managers showed strong interest in the Medibank float.
"It's not the tone they use in other situations where they are trying to talk the price down," they said.
They denied there was a bias to foreign funds over Australian funds in the Meridian float.
Investment banks need to generate overseas demand for Medibank to ensure the sale is supported, the source said, pointing to the experience with QR National. The float of that company, now known as Aurizon, did not inspire strong interest from domestic funds and "only really got over the line because international investors supported it", the source said.
There has been no advice from the government or Lazard to banks on a preferred split between local and foreign funds, the source said.
However, the source pointed to the "historical" record of local privatisations, which have kept 50 per cent to 60 per cent of shares for retail investors, to ensure Australians "have the ability to buy". More than 750,000 retail shareholders have registered their interest in the float.
One fund manager fell on the side of the vendors, and said it was "a bit much" to draw a direct comparison with the float of Meridian.
"It was very different circumstances," he said. "I don't think you will see a massive skew to international [with the Medibank institutional share offer]."
