I am sure most of you in Australia, if not all, would have heard about the IPO for Royal Wolf. The IPO was opened on Friday, 20th May 2011, and will close on Friday, 27th May 2011. The IPO price is $1.83 per share, but the minimum investment is $2,000 AUD, which is equivalent to approximately 1,092 shares. I believe the IPO is only opened to investors in Australia.

Royal wolf is in the industry of leasing and selling shipping containers. The main markets are in Australia and New Zealand. The proceeds of the IPO are intended to pay off the debts and license fees, and also to cover IPO-related expenses.

IPO is normally a good opportunity for investors to buy the shares, as no brokerage is charged. Although brokerage fees is very minim, on average $20 per transactions. But you may be looking at brokerage fees of $40 in total for buying and selling. The recent success of IPO in Australia which I could recall is QRN. The IPO price was approximately $2.45, but now the share is trading at $3.40 (the peak since IPO was $3.50).

Reading through the prospectus, the IPO seems like a good investment with an above average risk. Depending on your risk appetite, you may be interested in this share. Why do I say the risk is above average? The reason is liquidity. In this kind of industry, capital is mostly tied up in fixed assets (long term), thus liquidity might be an issue if it is not managed properly. Looking at the profile of the directors and executives officers, they look to be very competent. The board comprises of those with diverse experiences and knowledge.

If the issued shares are fully subscribed, and they subsequently use the proceeds as set out in the prospectus, there might be a reduction in expenses such as interest expense and license fee expense. The Royal Wolf exposures to foreign exchange will also be reduced as the debts are sourced from USA.

For investors who are looking for a tax-effective income. This IPO may not be attractive. Royal Wolf has a carried forward tax loss which can be used in the coming years, thus would not be able to pay a fully franked dividend. Instead, the dividend paid will be unfranked. In the prospectus, Royal Wolf expect to pay dividends in early 2012. From my memory, there is a new section in Corporations Acts 2001 which prohibits companies from paying dividends when their equity was very low. So, the executives must be very optimistic on the future of the company.

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