Emeco Plans to Raise A$1.1 Billion in Initial Offer

Emeco Plans to Raise A$1.1 Billion in Initial Offer

Emeco Ltd., an Australian earthmoving equipment company, aims to raise as much as A$1.1 billion ($804 million) in a public share sale, capitalizing on the nation’s surge in minerals and energy exports.

The company will sell stock between A$2.10 and A$2.50, Perth, Western Australia-based Emeco said today. Local buyout firms Pacific Equity Partners and Archer Capital will cut their Emeco stake to 10.4 percent in the initial public offering, Australia’s biggest this year. Emeco workers will own 12 percent.

Emeco gets 91 percent of its earnings from renting equipment such as bulldozers and excavators to clients such as miners. The value of Australia’s minerals and energy exports is forecast to rise by almost a fifth to a record A$110 billion by July 2007 from a year earlier, driven by Chinese demand, the Australian Bureau of Agricultural & Resource Economics said today.

“Mining services is a lower-risk way to play the resources boom,” said Brian Ingham, who manages about $103 million at Reward Asset Management in Sydney. “These companies tend to lock in long-term contracts.”

Archer and Pacific Equity bought Emeco from forklift company Darr Equipment Co. for about A$500 million in December 2004, people familiar with the sale said at the time. Australia is Emeco’s biggest market, accounting for 72 percent of earnings. The company also rents and maintains mining equipment in Canada, Indonesia and the U.S.

Record Commodity Prices

Commodities account for almost 60 percent of Australia’s export earnings, driven by companies including BHP Billiton and Rio Tinto Group. Prices of iron ore, oil, copper and zinc reached records in the past three months.

Citigroup Inc., Credit Suisse Group and UBS AG are managing Emeco’s share sale.

Australia’s benchmark S&P/ASX 200 Index is about 9 percent below its all-time high of 5406.70 on May 10.

Shares of Melbourne-based Boom Logistics Ltd., an Australian engineering and machinery rental company, have gained 31 percent this year, outpacing a 4 percent gain in the key index, according to Bloomberg data. United Group Ltd., an Australian engineering company, has gained 11 percent.

“You only have to see how similar stocks such as United Group and Boom Logistics have done this year to see why the company is keen to sell shares,” said Ingham.

Forecast Earnings

At the upper level of the offering, Emeco stock is being sold at 14.4 times forecast earnings before interest and tax in the 12 months to June 30, 2006, according to the company. Boom Logistics trades at 12.8 times EBIT according to the median estimate of six analysts surveyed by Thomson Financial.

Emeco said earnings before interest and tax will rise 52 percent to A$118.4 million in fiscal 2007.

In December, Spark Infrastructure Group, an Australian power distributor, raised A$1.6 billion in an IPO, and Singapore Power Ltd. raised A$1.4 billion in the share sale of its Australian unit. The Bloomberg Australian IPO Index has gained 25 percent in the past 12 months.

Emeco will offer between 451 million and 479 million shares in the IPO, assuming half its note holders exchange their securities for ordinary shares. Note holders will be able to exchange their securities for ordinary shares 2.5 percent below the final offer price to individuals.

Retail investors can apply for Emeco stock from July 3. Professional investors will bid for the shares July 25. The company is slated to start trading on the Australian Stock Exchange on Aug. 7.

Source: www.bloomberg.com

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