A Firmus price, on someone else's shares

Firmus Grid, the Australian AI data centre company backed by Nvidia, closed the books on its initial public offering on Thursday morning in Australia without a clear indication of the price or the structure of the deal, Bloomberg reported in a story republished by CNBC-TV18. It had marketed the shares at A$11, which implied a valuation of A$43.7bn, and was seeking up to US$5.5bn including an over-allotment option. A term sheet told potential investors that the bookrunners would provide further information about the offer, and the final details were still being worked out on Thursday, Reuters reported. Local media reported that Firmus and its advisers were weighing a smaller offer at A$8.25 a share.

By the end of the Australian trading day Firmus had announced nothing. Its offer documents were pulled from the virtual data room provided to fund managers around lunchtime on Thursday, and bankers had begun talks to shrink the raising, the Australian Financial Review reported. The company and its advisers had lobbied Nvidia overnight for more financial support, The Australian reported, according to Mingtiandi, which said the market had been given no word by the afternoon on whether the deal was off.

Firmus has no share price yet. Maas Group Holdings does. The Dubbo-based industrial group owns 3.2 per cent of Firmus and, through its electrical subsidiary JLE, is also one of its suppliers. Its shares fell as much as 30 per cent during Thursday's session, the most on record according to Bloomberg, and closed down 22.4 per cent, Reuters reported, wiping about A$517m off its market value. The exchange wrote to the company on Thursday, citing a fall from a close of A$6.39 on Wednesday to a low of A$4.50, and asked whether it knew of anything that had not been announced.

It did not, Maas said in its reply to the ASX, and it offered an explanation instead. "MGH notes that there has been significant market speculation and commentary concerning whether the proposed IPO of Firmus will be proceeding." The company described itself as both an investor in Firmus and a supplier to it. "MGH considers that such speculation has influenced investor sentiment towards MGH and contributed to recent trading in its securities."

The arithmetic of the stake does not obviously explain a fall of that size. Emanuel Ajay Datt, managing director of fund manager Datt Group, said that cutting Firmus's price from A$11 to A$9 would reduce the value of Maas's holding by about A$75m. "The selloff reflects a legitimate derating of the embedded value of its Firmus stake, but the magnitude is overdone," he said, according to Reuters. By our arithmetic, Thursday's loss in market value was about seven times his estimate. Macquarie, in research this week reported by The Motley Fool Australia, put the stake at A$4 per Maas share if Firmus were valued at A$43.7bn, but valued it at A$1.42 a share, reflecting the valuation at which Maas invested.

What the market may have been pricing is the rest of the relationship. Maas's results already lean on Firmus. At its annual meeting on 24 September the company reported an investment uplift of A$41.7m inside its underlying earnings, A$40.2m of it for its Firmus holding, according to the meeting presentation. Its managing director's address said the electrical business had about A$1.2bn of secured work in hand, including a work order of about A$855m received in August for the manufacture, supply and delivery of modular Power Cube units and high-voltage infrastructure over 18 months. The company said that work positioned it to help deliver infrastructure for data centres, AI factories, renewable energy and electrification. The address did not name the customer.

The doubts about Firmus itself were about price, supply and execution. Some potential investors grew cautious about existing shareholders selling soon after the debut, which added to concerns over what some saw as aggressive pricing, Bloomberg reported; the close of bookbuilding had been brought forward to Thursday from Friday after early indications of demand well above the offer size. "I've never seen an IPO so polarising," Jun Bei Liu, co-founder and lead portfolio manager at Ten Cap Investment, said on Bloomberg TV. "There was a lot of international investor interest; however, when it comes to the crunch, the demand seems like it isn't there when they were asked to put up the capital that's required." Other potential investors told Reuters they were cautious about the valuation, the company's ability to carry out its growth plans and its debt.

The valuation had moved fast. The A$43.7bn valuation implied by the A$11 price was nearly three times the A$15bn at which Nvidia, Coatue, Blackstone and Jane Street invested A$2.85bn two months ago, according to Startup Daily, which reported that Firmus has 46MW of capacity operating in Melbourne and Singapore. The proceeds would buy graphics processors for its first project, in Batam, Indonesia, being developed with DayOne, which filed for its own Nasdaq listing this week. The term sheet had scheduled trading on the ASX for 23 October, Startup Daily reported earlier. The float would be Australia's largest new share sale in nearly three decades, behind only Telstra's in 1997, according to Reuters.

Bank of America, JPMorgan, Morgan Stanley and Morgans are the joint lead managers. Whether they bring Firmus to market at a lower price, with a smaller raise or not at this attempt, the first public mark on the company has already been made, in Maas's share price. Maas closed on Thursday at A$4.96, down A$1.43, according to ASX market data.