Rio Tinto Group's Cloud Peak Energy coal unit cut the price for its $US459 million ($505 million) initial public offering as buyers extracted concessions from underwriters for two IPOs and rejected another company's offering this week.
Cloud Peak, the third-largest US coal producer, fell 16 cents, or 1.1 per cent, to $US14.84 in its first day of trading on the New York Stock Exchange. The company sold 30.6 million shares at $US15 each yesterday after investors refused to pay the $US16 to $US18 a share that the company sought, Bloomberg data showed.
Global Defense Technology & Systems Inc. followed by pricing its IPO at $US13 a share after asking for as much as $US16. Earlier in the day, HealthPort Inc. became the fourth US company to postpone its sale in three weeks.
While sellers have raised more than $US10 billion unloading shares into the biggest US stock-market rally since the Great Depression, investors in almost half of the US company IPOs since September are sitting on losses. That's prompted buyers to demand better terms as underwriters pitch new offerings during the busiest period of US share sales in almost two years.
``Underwriters don't set valuations, investors do,'' said Lawrence Creatura, a fund manager at Federated Investors Inc., which oversees $US390 billion in Pittsburgh. ``IPOs traditionally carry a lot more risk than stocks which have trading histories. It only takes one of the stronger hands that the underwriters were depending on to pull back to ruffle a deal.''
November rebound
Cloud Peak, Global Defense Technology, and HealthPort were setbacks for an IPO market that had started to rebound from the worst returns on record. The six companies that had completed offerings in November before yesterday had outperformed the Standard & Poor's 500 Index by 18 per centage points on average, data compiled by Bloomberg show.
That's a reversal from the prior two months, when shares from 18 IPOs trailed the benchmark gauge for American equities by 1 per centage point in their first month of trading, the worst performance since at least 1995, according to Bloomberg data.
IPOs by American companies have beaten the S&P 500 by an average 21.3 percentage points since 1995, the data show.
Cloud Peak's offering came after St. Louis-based Arch Coal Inc., the second-biggest US coal producer, said last month that it planned its smallest shipments in five years due to reduced demand and high stockpiles at utilities caused by the economic slowdown. London-based Rio, the world's third-biggest mining company, will retain a 48 per cent stake in Cloud Peak.
`Sloshing around'
``The market is still not great and if you look at the coal market in the US there is probably still 200 million tons of inventory sloshing around across the continent,'' Glyn Lawcock, an analyst at UBS AG, said in Sydney. ``To get it away in that market, it had to be a discount.''
Rio slid 1.9 per cent to $71.22 on the Australian stock exchange on Friday, trimming its advance this year to 138 per cent. The company's shares traded on the London Stock Exchange retreated 1.1 per cent to 3,148 pence. Cloud Peak began trading today on the New York Stock Exchange under the ticker CLD.
Rio has announced $US7 billion of asset sales since 2007 to help repay debt from its $US38.1 billion purchase of Canadian aluminum producer Alcan Inc. The Cloud Peak sale proceeds will be used to finance the acquisition of assets in Rio's western US coal business, a Nov. 9 filing showed.
Peabody earnings
Peabody Energy Corp., the largest US coal producer, last month increased its 2009 earnings forecast on higher prices and the St. Louis-based company also projected higher demand. The US, which holds the world's largest reserves of coal, relies on the fuel for about half of its power generation, compared with about 20 per cent for natural gas. Demand for coal may improve next year, according to UBS's Lawcock.
The American economy returned to growth last quarter after a yearlong contraction, expanding at a 3.5 per cent pace, the Commerce Department said on Oct. 29.
``We would look for more positive growth rates in the US in 2010,'' Lawcock said. ``One would like to think that with more economic activity comes greater demand for energy.''
Credit Suisse Group AG of Zurich, New York-based Morgan Stanley and Royal Bank of Canada in Toronto served as underwriters for Cloud Peak's IPO.
Global Defense Technology, which develops products including counter-terrorism intelligence for national security agencies, followed Cloud Peak in reducing the price of its IPO last night. The McLean, Virginia-based company's offering of 4.6 million shares priced at $US13 each after underwriters sought $US14 to $US16, Bloomberg data show. The stock rose 8 cents, or 0.6 per cent, to $US13.08 today in Nasdaq Stock Market trading.
AEI, Aviv REIT
Earlier yesterday, HealthPort had followed AEI, Aviv REIT Inc. and Dallas-based Plains Capital Corp. in postponing its initial share sale.
All four except Plains Capital were backed by private- equity funds. George Town, Cayman Islands-based AEI, Enron Corp.'s former international energy business controlled by London-based Ashmore Group Plc, pulled its $US800 million offering on Oct. 29. The company cited ``market conditions'' after underwriters cut the IPO 58 per cent to 21 million shares and lowered the forecast price range.
Aviv REIT of Chicago, owned by JER Partners, the McLean, Virginia-based buyout firm that specializes in real estate acquisitions, shelved its $US315 million IPO on Nov. 3.
Lehman's collapse
Yesterday's offerings brought the total in November to nine and followed the busiest two-month period for US IPOs since December 2007 to January 2008, Bloomberg data show. Initial share sales had evaporated in the fourth quarter of last year after New York-based Lehman Brothers Holdings Inc. filed for the world's largest bankruptcy and spurred a credit-market freeze.
Companies from Hyatt Hotels Corp. in Chicago to Enfield, Connecticut-based STR Holdings Inc. have climbed above their IPO prices after going public this month.
Fortinet Inc., the Sunnyvale, California-based maker of all-in-one network-security equipment, sold shares this week above its forecast range and has since surged 33 per cent. Archipelago Learning Inc., the subscription-based online education company in Dallas, rose $US2.27, or 14 per cent, to $US18.77 on the Nasdaq today after pricing its IPO last night at $US16.50, near the high end of the range it sought.
``The IPO market has limped back to health, but exactly how healthy remains to be seen,'' Federated's Creatura said. ``The patient may not be all the way off the operating table.''
