Blockbuster Firmus share market float pulled after investors baulk at valuation

The blockbuster float of data centre operator Firmus Technologies was cancelled after investors refused to buy shares at a price that would have valued the business at $43.7 billion.

Rather than accept a lower price, the owners decided to keep the company private for now and raise money from private investors to fund the construction of its data centres.

It would have been the second-largest listing in the history of the Australian Securities Exchange after Telstra in 1997, and a way for Australian investors to bet on artificial intelligence, which advocates say will be a milestone in the history of human development.

“Having considered recent market volatility and prevailing market conditions, the board determined that the terms on which the offer could proceed would not appropriately reflect the strength of the company’s business and long-term growth outlook,” the company said Friday morning.

“The Board therefore concluded that proceeding with the Offer was not in the best interests of the Company and its shareholders.

“Firmus will now pursue capital from the private markets and consider alternative public and private market options.

“We will provide additional information to shareholders as those options progress.”

Firmus had planned to raise $US5 billion ($7.2 billion) from investors by Thursday afternoon at $11 a share, but a lack of demand reportedly cut the price to $8.25 each and reduced the value of the capital raising to $US3 billion.

Separately, Firmus planned to issue around $US30 billion in debt to pay for the data centres, which would be rented a “AI factories” to big tech companies such as Meta. The future of those plans are unclear.

The share market hopeful attracted criticism from some fund managers over its limited operating history, changing strategy, lack of detail over its plans to construct data centres at costs lower than rivals, and loss-making status.

“If it is being repriced it shows that a flawed structure in a highly speculative company designed to benefit insiders at the expense of retail clients has been seen for what it is,” said Andrew Brown, the founder of investment fund East 72 Dynasty Trust.

Other professional investors and existing shareholders, including Wilson Asset Management and Regal Partners, argued Firmus would prove good value to IPO investors. Their logic is that AI is still early stage and booming demand for it over the next decade will underpin Firmus’ growth.

Bond yields surge

The company’s 56-page pathfinder prospectus, distributed to prospective investors this week, forecast earnings before interest and tax of $US5.8 billion in 2029 and revenue of about $US13 billion.

The forecasts depend on Firmus successfully expanding from its existing operations and building seven data centres across Australia, Indonesia and Malaysia by 2029.

The scale of the expansion will require substantial borrowing, leaving Firmus exposed to a sharp increase in global borrowing costs as investors demand higher yields from governments.

On Thursday morning, the benchmark risk-free rate and cost of borrowing rate hit 5.36 per cent, at its highest level since 2002.

The rise in bond yields threatens to make debt-funded infrastructure projects more expensive, while reducing investor appetite for speculative technology companies whose valuations depend heavily on future growth.

“I think the market for AI clearly exists but none of us are sure what the total size of it (is) and over what time frame,” Mr Brown said.

“AI’s undoubtedly overinflated near term and adding debt to the mix at a time of massive government deficits pushing rates higher is lethal.”

Oliver Curtis, 41, co-founded Firmus in 2019 as a Bitcoin mining company not long after being released after serving one year of a two years jail sentence for insider trading.

The other founders are his cousin Tim Rosenfield and brother-in-law Jonathan Levee.

Mr Curtis holds a 13.3 per cent stake in Firmus, with its other investors including AI chipmaker Nvidia and global private equity giant Blackstone.