EQUITIES: Renewable Energy Group prices first IPO of 2012
As expected, Renewable Energy Group cracked the seal on the 2012 vintage of new issuesin the US, pricing its IPO of 7.2m shares at US$10 each. While the offer represents a substantial discount to market guidance of US$13–$15 established by joint bookrunners UBS and Piper Jaffray, the concession was necessary to ensure participation in the deal by specialist investors.
“There is enormous pressure on this first wave of IPOs to trade well,” said a US ECM banker. “Nobody wants to shut down the IPO market this early in the year. If that means leaving a little money on the table, so be it.”
A roll-up of once-troubled biodiesel producers, the Iowa-based company operates six facilities that convert inedible animal fats and food oils into a drop-in fuel additive. It sold nearly 68m gallons of biodiesel in 2010, or 22% of total US production. The biggest investor criticism of Renewable Energy Group has been that biodiesel is a capital intensive business with costs accounting for nearly 90% of biodiesel sales.
The underwriters communicated on Wednesday that the deal was sufficiently covered within an US$11–$12 range, with a core-group of cleantech investors largely supporting the deal. Setting the offer one dollar below the revised target was an additional concession designed to boost aftermarket performance. So far, so good as Renewable Energy Group has traded-up 2.5% to US$10.25 in early trading after opening the session at the US$10 offer price.
Another late pricing
Better-than-expected fourth quarter earnings and the generally upbeat attitude of investors towards banks wasn’t enough to stop BancorpSouth from swallowing a deep discount on its US$100m follow-on.
The sale of 9.52m shares, or 11% of outstanding, surprised analysts. And not in a good way — as the issue came at US$10.50, a 14% discount to the stock’s pre-launch value.
The deal increases common equity to 8.8% of tangible assets and 11.1% of risk-weighted assets, according to Guggenheim Securities. Analyst Jeff Davis said management may want a capital and liquidity cushion for an uncertain economic outlook.
Alternatively, the money could be used to replenish capital if the bank takes a charge to unload non-performing loans. Morgan Stanley and Stifel Nicolaus were joint bookrunners for the offering.