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New LIC IPO focusing on FinTech disruption: H2Ocean limited (H2O)

ETF Watch - Sep 30, 2016

The H2OCEAN (H2O) IPO is open until 11 October 2016 through OnMarket Bookbuilds.  OnMarket Bookbuilds offers a $500 signup bonus (redeemable as additional shares) and provides 25% of their stamping fee as additional shares up to the bonus limit. If you are interested in applying for shares in the IPO you can do so here.

Australia's often maligned finance sector is one of the biggest in the world, with our big 4 banks dominating the ASX 200, add in the likes of Macquarie, AMP and Suncorp and it begins to look like our markets revolve around banking and finance companies. There's definitely plenty of money to be made in this sector, but in an oligoplolistic environment has traditionally been difficult for new players to compete. Like many industries, technology is beginning to break down these barriers, and as a result Fintech has become one of the biggest 'startup' sectors in Australia.

H2OCEAN Limited (H2O) attempts to capitalise on the opportunities that digital disruption of the finance sector brings, by investing in a portfolio of early and growth stage private financial technology companies. It will focus on companies which have completed an accelorator or incubator program, and typical invest alongside other professional investors. The manager plans to diversify the portfolio both geographically, with a global focus, and by Finance Sector, including personal finance, lending, payments, data security and wealth management.

The fund is run by Ben and Toby Heap, who boast to have established Australia's first Fintech accelerator in 2014, and launched fintech accelerator H2 Ventures in April 2015. Some of the companies H2 Ventures have invested in include Stockspot, Macrovue, Simply Wall St and HashChing. The board of directors includes media personality David Koch, and ex deputy minister for innovation, Wyatt Roy. To add further technology credibility to the offer, Atlassian co-founder Mike Cannon-Brooks has signed up to the IPO.

According to the ETF Watch Fund Database, there is only one other LIC available on the ASX with a similar focus to H2O, this being Bailador Technology Investments Limited (BTI). The key difference between the two offers is Bailador's focus on wider technology startups, compared to H2OCEAN's focus specifically on FinTech. As a result, for retail investors who are seeking some exposure to FinTech, or want to hedge their portfolio against possible disruption to the big banks, H2OCEAN may fill a niche in their portfolio.

As per the usual LIC IPO process, investors in the IPO will be gifted a free option for every share they purchase. These options have an expiry date of 19 April 2018, however will remain stapled to the shares for the first 12 months (meaning early investors will not be able to sell their shares but keep their options). Shares will be listed at $1.10, with Net Asset Value of between $1.074 to $1.077. Investors in the IPO should be aware of the above 2 facts, as exercise of options in the future will result in dilution of capital, and for every $1.10 invested, the investor will actually receive $1.074 worth of shares. Management fees will be 1.75% of assets per annum, with a performance fee of 20% of realised returns subject to an 8% per annum investment hurdle. This is a little different to a standard fee structure, as the manager is investing in companies which are difficult to value until sold, the performance fee only kicks on when companies are sold.

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IPO Facts

  • Minimum raise of $27.5m
  • Maximum of $55m (with $55m oversubscription facility, bringing a total maximum to $110m)
  • $1.10 issue price
  • 1 option attached for each share (stapled to the shares for 12 months)
  • Offer open date 7 September 2016
  • Offer expected to close 11 October 2016
  • Expected trading on the ASX 19 October 2016

The H2OCEAN Limited IPO is now open through OnMarket Bookbuilds.  OnMarket Bookbuilds offers a $500 signup bonus (redeemable as additional shares) and provides 25% of their stamping fee as additional shares up to the bonus limit. If you are interested in applying for shares in the IPO you can do so here.

This post was prepared with publicly available information available from H2OCEAN. ETF Watch did not receive any payment from H2OCEAN for this post, but may receive referral payments from OnMarket Bookbuilds.

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