High demand for Steel & Tube shares

Just over half the shares in steel products distributor Steel and Tube were snapped up in a matter of hours after they were put up for sale by its parent company, Australia's Arrium, the deal's underwriters Craigs Investments Partners said.

Arrium, formerly OneSteel, had earlier decided to sell its 50.3 per cent stake in Steel and Tube for $91.2 million, with Craigs IP underwriting the sale at $2.05 a share - a 15 per cent discount to Tuesday's closing price.

"We underwrote the deal and we were highly confident that we could get it done quickly and that proved to be the case," John Moore, head of equity capital markets at Craigs IP, told APNZ.

The stock last traded at $2.23, down 7.9 per cent or 19c from Tuesday's close.

The relative ease of the sale came despite tough times in the steel distribution sector. In New Zealand, total steel demand is still about one quarter down from where it was before the global financial crisis.

And in August, Steel & Tube reported a 23 per cent fall in annual profit to $13.1m as dwindling demand and stiff competition squeezed margins.

Arrium said proceeds from the sale, which will add to A$120 million already raised from asset sales, would be used to reduce debt.

Steel and Tube has a history of having big chunks of its stock tied up with one owner. Fletcher Metals bought a 24.9 per cent stake from British Steel Corp in 1980.

Since then, Tubemakers of Australia, the BHP offshoot, held a major stake. Steel and Tube then became part of BHP before BHP split off its steel making interests in the form of OneSteel, in 2000.

Late in 2008, on the cusp of the global financial crisis, OneSteel made an offer to buy the remaining shares in Steel and Tube, at $4 a share but the company pulled its offer when it became clear world markets were about to tank.

Fund managers said a lack of liquidity in the stock has in the past acted as a disincentive for investors, but Moore said the company now had a diverse spread of mostly local institutions and private investors on its register.

Rickey Ward, domestic equities manager at Tyndall Investment Management, said a broader shareholder base would help Steel and Tube's case for its inclusion on the main share index, the NZX50.

Inclusion on the NZX50 would make Steel and Tube more desirable for passive funds, which use indices as guide to weight their portfolios.

Underwriting fees for share placement deals vary, but the norm is about 2 per cent of the total transaction, potentially making the deal worth around $1.8m to Craigs IP.

Tuesday was a big day for the investment bank - which also ran a book-build to gauge interest for shares in beer brewer Moa, which is due to register its prospectus tomorrow.

 

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