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ETF News

RPT-IPO VIEW-Visa IPO a ray of hope for frozen U.S. IPO market

(Repeating item that initially moved on Friday)

NEW YORK, March 9 (Reuters) - Spring may be around the corner but the market for initial public offerings of stock in the United States has stayed in hibernation.

Only the huge IPO by Visa Inc, the world’s largest credit card network, with a pricing expected later this month, is cheering Wall Street.

With the Standard & Poor’s 500 Index down more than 11 percent year to date, bankers remain reluctant to bring new equity to the market.

No fewer than 30 U.S. IPOs were withdrawn or postponed in January and February, according to data provider Dealogic. Globally, more than 60 IPOs were put on ice in the first two months.

“We are off to our worst start for IPOs in the United States since 2003,” said Richard Peterson, director of capital markets at Thomson Financial.

“There have only been nine deals priced so far this year and there hasn’t been a deal priced in the past two weeks,” Peterson added.

If the stock markets do not reverse course soon, it will remain difficult for new offerings to catch the imagination of the public, experts say.

“Weakness in the overall stock market translates into the IPO market,” said Jay Ritter, professor of finance at University of Florida.

“The IPO market tends to be hyper sensitive to movements in the broader market ... and this hyper sensitivity tends to make the IPO market somewhat manic depressive,” Ritter said.

In January and February, the global credit crisis forced IPO hopefuls globally to shelve offerings totaling $21.4 billion, almost double the value of new equity issuance, Thomson Financial data showed.

Globally, 92 issuers raised just $12.2 billion in IPOs in the first two months, the lowest level since 2003.

In January and February, the United States contributed only 7 percent to global IPO issuance value, compared with last year’s 33 percent.

“It’s not as gloomy as it was in the middle of January,” Ritter said. “It’s typical that following market downturns that lots of deals get withdrawn and ... the new filing of deals dries up.”

RAY OF HOPE

One huge ray of hope for the U.S. IPO market came on Feb. 25 when Visa said it may raise up to $18.8 billion in the largest-ever U.S. initial public offering.

“It could be the oasis in the desert,” Peterson said of the Visa offering.

The eagerly awaited offering, that many expect to price on March 19, calls for Visa to sell 406 million Class A shares at $37 to $42 each, for proceeds of $15 billion to $17.1 billion, according to a filing with the U.S. Securities and Exchange Commission.

Visa said it might sell another 40.6 million shares to meet demand, boosting the IPO’s potential size to $18.8 billion.

Investors in Visa hope it can go some way to emulating the remarkable IPO performance of smaller rival MasterCard Inc MA.N, which went public at $39 a share in May 2006 and closed Friday trading at $192.51.

Experts are optimistic for the Visa IPO performance but warn that it is unrealistic to expect Visa to match the amazing performance of MasterCard’s stock.

“The Visa deal is certainly generating a lot of enthusiasm,” Ritter said, “... but because it is going public at a higher market capitalization than MasterCard did, the ability to double or quadruple the valuation ... is much more limited.”

What the mammoth Visa offering will do is bring many more individual investors into the IPO market.

Ritter said that if the Visa deal followed a typical pattern, where roughly 20 percent of shares are offered to retail investors, roughly 80 million shares could be allocated to individuals. Visa declined to comment.

If Visa decided on a typical retail allocation of 400 shares per individual, roughly 200,000 individuals might be able to buy Visa stock at the offer price, Ritter said.

“In that regard, this is potentially the biggest IPO ever in terms of the number of different individuals who will be able to buy it at the offer price,” Ritter concluded.

If the Visa stock performs well, it might just be the spark that the U.S. IPO market requires. (Editing by Tim Dobbyn and Maureen Bavdek)

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