Small companies seeking to raise funds on the Australian stock exchange face a tough year ahead, after enduring a "horror" year in 2008.
Financial advisers HLB Mann Judd, which specialises in initial public offers (IPOs) for small companies with a market capitalisation of $100 million or less, said the number of IPOs had contracted in 2008, a trend likely to continue in 2009.
HLB released details of its 2008 IPO Watch on Tuesday.
"There were more small cap listings for the last quarter of 2007 than for the whole of 2008," HLB corporate finance director Geoff Webster said.
"This contraction is continuing."
Mr Webster said the IPO market had been decimated by the global financial crisis, especially in October last year.
"I think we've got a bit of a hangover going into the new year where everybody is on a wait-and-see basis," he said.
Mr Webster said those small companies seeking to list on the stock exchange and raise funds in 2009 would have to be financially stronger, have sound business propositions and be far more realistically priced in terms of their listing price.
"This year people are going to be looking at stronger companies.
"They're going to be looking for existing shareholders who are going to stay in, and therefore the raising from the externals (new shareholders) is going to be less," Mr Webster said.
The HLB report said that the number of small-capitalised companies listing on the stock exchange in 2008 was the lowest in five years.
"It's been a horror year (2008) on the market," Mr Webster said.
Of a total of 68 new floats in 2008, 63 were small companies, with only five companies having a market capitalisation of more than $100 million.
But the 2008 figures fell well short of the record 215 small companies listing in 2007, out of a total of 245.
The number of companies that had gone to the market for funds had fallen 72 per cent, and the amount of funds raised in IPOs had dropped 91 per cent on 2007 levels.
Total funds raised in 2008 amounted to just $780 million, compared to $8.43 billion in the prior year.
The decline in funds became more pronounced later in the year, with only four per cent of funds raised in the final quarter of the calendar year.
HLB said IPOs in the resources sector contributed 72 per cent of activity in 2008 despite a 70 per cent drop in sector activity compared to 2007.
The overall median IPO funds raised fell by $1.2 million in 2008 to $5.2 million.
The resources sector increased its share of small cap activity in 2008, contributing 73 per cent of new listings and 62 per cent of total amounts raised by small caps.
Small cap share prices fell by an average 58 per cent in 2008 while large caps lost 80 per cent.
