May 9, 2010 / 4:21 PM / in 7 years

U.S. IPO market facing months-long shutout

4 Min Read

NEW YORK (Reuters) - The U.S. market for initial public offerings, which had just begun to warm up, could be facing another chill similar to that triggered by the financial crisis.

"We might be moving from people being cautious about IPOs to people not even bothering to look at IPOs because there is so much other stuff to deal with," said Nick Einhorn, an analyst with Connecticut-based Renaissance Capital.

"It's an easy thing to kind of ignore for now while you figure out your approach to the broader market and your broader portfolio," he said.

Three initial public offerings were pulled on Thursday after the Dow Jones industrial average .DJI lost nearly 1,000 points in what was its biggest-ever intraday point loss.

The dramatic slide was the first real stress test for the IPO market in about 20 months.

"I think it's very possible that we're going to see something similar to 2008 where deal volume for the next three months will be low," University of Florida finance professor Jay Ritter said on Friday.

"It's a global phenomenon, not just the U.S. The decline in worldwide equity markets and the increase in volatility is putting a heavy chill on IPO market."

Initial public offerings around the world are being canceled as fear over Greece's worsening debt crisis and the surprise drop in U.S. markets rattle investors. <ID:SGE6450IT>

Swire Pacific Ltd (0019.HK), which owns a mix of businesses including Cathay Pacific Airways Ltd (0293.HK), canceled the $2.7 billion Hong Kong IPO of its property unit on Thursday. Americold Realty Trust (ACRE.N) -- a refrigerated warehouse real estate investment trust backed by billionaire investor Ron Burkle that would have been the largest U.S. share float so far this year -- also pulled its downsized $600 million offering, also on Thursday.

Last week Russian fertilizer maker UralChem postponed a $642 million IPO due to market uncertainty.

Market Momentum

The IPO market is a directional bet on the broader markets, said Chicago-based Harris Private Bank Chief Investment Officer Jack Ablin, who helps oversee $55 billion.

New issues and private equity exits like HCA Inc's (HCA.N) proposed $4.6 billion IPO may have to come up with non-IPO strategies in the near term, he said, adding that there will likely be fewer buyers for IPOs in the near term and even more pressure on valuations.

Some of that pressure was showing in the markets even prior to Thursday's collapse. Earlier on Thursday, dental services provider Smile Brands Group Inc GRIN.N canceled its $125 million proposed share float.

Bankers were only able to build a book at $14 a share, 17.6 percent below the midpoint of the $16 to $18 range, according to an underwriter.

"We may end up seeing a number of IPOs not trade or not price at all or go into a postponement," said IPOfinancial.com President David Menlow. "It's going to take a couple of upside surprises to get things going again."

A Positive Trigger

The IPO drought that began in August 2008, ended after 25 weeks of near silence in February 2009, when Mead Johnson Nutrition Co MJN.N raised $720 million, according to Thomson Reuters data.

The deal's large size and defensive position -- baby formula is not a discretionary purchase -- helped crack the market.

The CBOE Holdings Inc IPO and online marketing company ReachLocal Inc RLOC.O could garner interest, but there is nothing as dependable as Mead currently in the pipeline, analysts said.

Seven IPOs hoping to raise about $1.32 billion are on the schedule for this week.

Reporting by Clare Baldwin; Editing by Richard Chang

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