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Medibank sale surpasses estimates, raises $5.679 billion

24 November 2014 - 2:02pm

The highly anticipated and much talked about share offering of Medibank has been completed, with $5.679 billion raised from the initial public offering (IPO). The company will officially begin trading on the Australian Stock Exchange at noon on November 25.

Earlier estimates outlined that the government would stand to make somewhere between $4.3 billion and $5.5 billion, but the huge amount of interest has already seen those figures comfortably surpassed.

Huge demand

The level of demand was incredibly high - with all 100 per cent of the available shares being snapped up by eager investors. There was interest from both retail and institutional investors, which led to the capping of prices for the former at $2 a share. Retail investors make up the majority of buyers - with 60 per cent of the issued shares in their hands. 

There was a concerted effort from the government to ensure that the opportunity for big investment firms was scaled back to allow for more interest from retail investors. However, the minimum investment remained at $2,000, with no investor - retail or otherwise - being granted less.

High share price

The IPO raising more money than was originally predicted can be seen as a positive, but there are now fears that the inflated rate may mean that the management team in charge of the fund will have a difficult time keeping every investor happy.

Argo Investments Senior Investment Officer Christopher Hall explained to The Age that his firm believed that the price is high. "It's certainly at the upper end of the pricing band. It's going to be critical now that management deliver on the strategy to meet the prospectus forecasts and beyond."

Whether desired levels of return will match up with the forecasts remains to be seen, but early estimates suggest that the value of the shares has been inflated by around 15 per cent. 

The government has claimed that the money raised from the IPO will be re-invested into creating job infrastructure. Whilst that may well be the case, the irony is that the privatisation and inflated share price could lead to Medibank having to satisfy investors by saving capital around the business - namely with staff cuts and other money-saving schemes. 

Medibank policy holders could now be caught up in the period of transition. Whilst it isn't necessarily likely that the quality of service provided by their policies will suffer, the shift from public to private sector could mean that there are now more viable options available.

If you are concerned that your health insurance policy is no longer at its most competitive, why not contact HICA on 1300 44 22 01 for impartial, expert advice.