Bradken May Float Next Year
By Tansy Harcourt, Australian Financial Review.

Bill Ferris and his team at Castle Harlan Australian Mezzanine Partners could be set for another win on the sharemarket, with the planned $400 million float of mining and railway engineering group Bradken early next year. One of the biggest venture capital groups in the country, CHAMP backed a $185 million management buy-out of Bradken from the Smorgon group two years ago. CHAMP is the latest group to take advantage of the strong appetite for new listings 104 companies have joined the market so far this year.

The most successful float has been MPI Mines, which is showing a 275 per cent gain after raising $7 million in January, while the most recent IPOs include Monday's $2.3 billion float of Virgin Blue, which sold $600 million worth of stock. CHAMP, Bradken management and US-based ESCO Corp will retain the proceeds from the float. Confirming that it was looking at a float, Mr Ferris said the decision to list followed the continued strength of the equities market and signs the resources sector was in a upswing.

"Bradken is in the right position to benefit from that [the resources upswing]," he said.

Investment bankers are pitching for the underwriting mandate and an outcome is expected in the next two weeks. Mr Ferris said trade sale options were also being considered. JPMorgan, which provided the debt funding for the MBO, is probably in with a good chance of scoring a lead role on the IPO, but banks such as UBS and Citigroup are also understood to be angling for the lucrative mandate. CHAMP looks set to triple its money on Bradken, because a resurgent resources sector and a strict focus on cost control have bolstered the engineer's profits.

Bradken is Australia's biggest provider of ground engaging tools (GET) and crawling shoes used for drag lines and heavy mining machinery. Its main customers are companies such as Rio Tinto and BHP Billiton. CHAMP provided about 75 per cent of Bradken's equity, management about 5 per cent and US-based ESCO Corp, which makes the metal teeth for tractors, 20 per cent.

The venture capital firm is mulling an IPO for Bradken because of the booming market for floats, highlighted by a dazzling first few days' trade for low-cost airline Virgin Blue.

All bar 22 of the 104 newcomers to the Australian Stock Exchange have provided investors with a positive return. Bradken is the latest in a long list of lucrative investments for Mr Ferris. His venture capital funds pocketed $250 million from a $2 million investment in internet search site LookSmart, which was sold at the height of the dotcom boom, and tripled their money selling online recruitment company Seek to Kerry Packer's Publishing & Broadcasting.

CHAMP also controls regional pay TV group Austar United Communications. CHAMP is half owned by New York private equity firm Castle Harlan and half by Bill Ferris and Joe Skrzynski. Bradken is likely to attract considerable attention because of its exposure to the mining sector, which is enjoying its day in the sun because of demand for commodities from China.

China has underpinned the current resources boom, with base metal prices soaring to multi-year highs and iron ore and coking coal exporters look set to secure windfall price rises in 2004.

Coupled with continued global economic growth next year, this augurs well for higher capital expenditure by the miners after a few lean years. Bradken is understood to make a profit of about $50 million a year, from revenue in excess of $350 million per annum

The company supplies consumables such as ground and gauging tools to the mining sector and bogies and couplers to the rail freight sector. Its fortunes are tied to the resources and rail industries, rather than than to the building sector.

Bradken owns foundries throughout Australia and New Zealand. Smorgon sold the Bradken business in 2001 to lower its crippling debt and at a time when the commodities sector was out of favour. The business had been acquired by Smorgon as part of the ANI purchase in 1999. The $185 million proceeds of the sale of the business in the management buy-out went towards reducing Smorgon's gearing level from above 100 per cent.

KEY POINTS

· CHAMP says a trade sale of Bradken is also an option.

· The engineer provides equipment to the booming mining sector.

Australian Financial Review