NXP Shares Trade Flat in Debut

(Reuters) – The shares of Dutch chipmaker NXP Semiconductors NV NXPI.O, closed flat with their IPO price in their debut on Friday, as investors expressed reservations about the company’s debt and the cyclical semiconductor industry.

The shares, which opened 7.1 percent below their IPO price, narrowed the loss over the course of the day to close flat, at $14 on Nasdaq.

Several analysts pointed to NXP’s debt as a concern.

NXP has “a much higher debt burden than some of its peers,” said Morningstar analyst Brian Colello.

The company had $5.2 billion worth of debt and $8.1 billion worth of total assets as of April 4, for a debt-to-asset ratio of about 0.64, according to a filing with the U.S. Securities and Exchange Commission.

Rival Analog Devices Inc (ADI.N) has debt of about $380 million and assets of about $3.93 billion, for a debt-to-asset ratio of around 0.1.

Chief Executive Richard Clemmer said on a conference call with journalists that NXP needs to continue to work on its capital structure.

NXP said in a regulatory filing it would use proceeds from the IPO to repay part of its debt. During conference call, the company stressed it reduced its debt by $1.3 billion in bond transactions in 2009 and recently pushed out the maturity of around $1 billion in debt to 2018 from 2013-2014.

NXP was bought out by private equity investors, including KKR, Bain, Silver Lake, Apax and AlpInvest in 2006. Clemmer was installed as CEO by KKR in 2009 as the company struggled under the weight of debt taken on before and after its leveraged buyout.

A CYCLICAL INDUSTRY

NXP is based in Eindhoven in the south of the Netherlands, where several Dutch technology companies, particularly in the semiconductor industry, are based. ASML Holding NV (ASML.AS), which makes the lithography machines that etch circuits onto semiconductors, is also in Eindhoven.

NXP, whose customers include Apple Inc (AAPL.O), Bosch and Huawei Technologies Co Ltd [HWT.UL], posted a 66 percent increase in sales in the first three months of the year compared with a year earlier. But sales fell in 2007, 2008 and 2009 and the company has never posted a net profit.

Josef Schuster, portfolio manager of Direxion Global Long/Short IPO Fund, who has a neutral rating on the stock, said it would “cycle with the semiconductor industry.”

Chipmakers have reported rising sales in the second quarter of this year, bouncing back from the previous year when customers sharply cut orders, but chipmaker shares have failed to rally much in recent weeks due to fears demand will slow in the highly cyclical industry.

CEO Clemmer declined to comment on how the second-half of the year would shape up, but said analysts expect relatively flat revenue growth projections based on capacity constraints.

THE PIPELINE

NXP is the first of four big private equity-backed IPOs in the U.S. pipeline.

The three other are hospital operator HCA Inc, which filed for an IPO of up to $4.6 billion; Nielsen Holdings BV, known for viewership ratings that often determine the fate of TV shows, which filed for an IPO of up to $1.75 billion; and Toys R Us, which filed for an IPO of up to $800 million.

The private equity owners of Freescale Semiconductor Inc [FSLSM.UL] are also considering an IPO.

NXP sold 34 million shares for $14 each on Thursday, well below the expected range of $18 to $21. It raised about $476 million.

The company originally filed for an IPO worth up to $1.15 billion, but set the terms for the deal in late July and said it hoped to raise only about $663 million.

Underwriters on NXP’s IPO were led by Credit Suisse, Goldman Sachs and Morgan Stanley. NXP shares trade on the Nasdaq under the symbol “NXPI.”

Deutsche Bank AG (DBKGn.DE) lost its underwriting slot for the IPO in April because it refused to renew a $60 million line of credit for the chipmaker. (Reporting by Clare Baldwin and Liana Baker; additional reporting by Alexei Oreskovic in San Francisco and the Amsterdam newsroom; editing by John Wallace, Gary Hill and Andre Grenon)

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