The mining state of Queensland sold 60 percent of the business, which relies heavily on hauling coal for export to China, in what was Asia's fifth-largest initial public offer outside Japan so far this year.
The Queensland government priced the shares at A$2.55, near the bottom of its indicative range, and encouraged QR National's new investors to expect a strong performance over time — but there are concern the stock may sink on market debut on Monday.
“There is certainly not going to be any fireworks on opening,” said a fund manager who bid for the shares. “But I can see the long-term benefits,” he added. He declined to be named because he was not authorized to speak to the media.
Queensland Treasurer Andrew Fraser also stressed that QR National, seen as a bellwether for the nation's stuttering IPO market, should not be judged on one day's trade. “The judgment that needs to be passed is not on Monday night but well into the future,” Fraser told reporters.
Bankers marketed the QR National IPO as a business geared to the Chinese economy, but fund managers said the stock looked fully priced at 21.5 times prospective earnings, especially given Queensland was likely to sell down again in a few years.
QR Nation's closest Australian rival, Asciano, trades at 20.4 times. Comparable major North American rail groups trade around 15-16 times, according to Thomson Reuters data.
QR National's business is also cyclical and faces upcoming contract renewals and the need to fund capital expenditure of more than A$3.5 billion ($3.46 billion) over the next few years.
The QR National IPO was covered around 1.5 times at the issue price, reflecting modest demand compared with six times by retail investors in the world's largest IPO, Agricultural Bank of China, on the Hong Kong market in July.
Last week's $20.1 billion IPO of General Motors, the biggest in US history, was also covered multiple times. The Queensland government, which had given an indicative price range of A$2.50-A$3.00 a share, has only committed to retain its 40 percent stake till 2012, drawing concerns from investors who fear the government will flood the market with shares.
It raised a total of A$4.6 billion in the flotation, including a dividend and a A$500 million debt repayment, both payable by QR National to the government.
QR National, valued in total at A$6.7 billion at the issue price, breaks a drought in large share offers in Australia since the global economic downturn. Investors hope a successful float may open the door to a series of stalled IPOs in the new year.
Retailers Myer MYR.AX and Kathmandu KMD.AX, which were the last two big IPOs, both trade below their issue price.
QR National is expected to open at about A$2.52 on Monday, according to the average of a straw poll of six dealers and fund managers. Three of them expect the stock to debut well below the issue price, with the best forecast at A$2.60.
The float drew a poor response from local institutions but was propped up on Friday after major offshore investors jumped in, betting on Australia's resources boom.
