Medibank Indicative price _IG markets Gray Market Chart, page-78

US hedge funds join Medibank float BRIDGET CARTER AND GRETCHEN FRIEMANN - THE AUSTRALIAN 22 MIN AGO

Influential US hedge funds Viking Global and Passport Capital are among the international investors flooding into the Medibank float, which is on track to become the second-largest initial public offering in Australia’s history. According to sources, offshore ownership in the private health insurer is expected to be unusually high for a domestically listed company as the government attempts to shore-up trading post the debut. Viking Global, a $28.8 billion firm, is one of the top hedge funds in the healthcare area, while Passport Capital, a near $4bn hedge fund led by John Burbank, has also performed well in this sector. As first reported by The Australian, Medibank’s institutional book build is expected to price at around $2.10, far above the indicative price range set by the government ahead of its listing on November 25. According to sources, grey market trading is already underway with IG Markets selling contracts for difference (CFDs) at $2.15. CFDs are derivative products that enable investors to place leveraged wagers on short-term price movements. While the CFD market price level signals the depth of retail appetite for Medibank, it also indicates institutional investors are likely to suffer heavy scale backs once the book build begins at 7am today. Joint lead managers to the float, Deutsche, Macquarie and Goldman Sachs, have directed fund managers to demonstrate “price leadership” in their allocation requests, meaning those who are more aggressive stand a greater chance of securing a larger volume of shares. The feeding frenzy atmosphere means the book will open already covered at the indicative range of $1.55-$2. Those close to the discussions claim it is five times oversubscribed. It is understood a number of institutions have submitted requests at $2.15. However the consensus view puts the institutional price at $2.10, equating to 21 times the projected 2016 earnings. This lofty valuation has drawn criticism from some funds managers who argue Medibank remains a cost-out story rather than a radical growth prospect. Much of the upside is expected to be derived from the transition to a more leaner operational structure as it strives to achieve the more profitable margins and management expense ratios displayed by arch rival Bupa. Yet despite all the griping many fund managers concede that the stock will perform well in the aftermarket. This is partly due the high demand evidenced from international fund managers.