KKR Delay Signals Tough Road for Financial IPOs

By Phil Wahba

NEW YORK, Nov 9 (Reuters) – The worst drought in decades for the U.S. initial public offering market has shown that companies in all sectors are struggling to go public.

But financial companies — from private equity firms to banks and insurers — are experiencing a particularly bumpy road. The few waiting in the IPO pipeline are in for a long wait before they can hope to launch an IPO, analysts said.

The credit crisis has turned many financial blue chips into penny stocks, and almost all recent financial IPOs have flopped.

Early last week, private equity firm Kohlberg Kravis Roberts & Co (KKR) [KKR.UL] became the latest company to say it would wait out the storm in the markets.

After the famed buyout shop’s Amsterdam-listed affiliate suffered big losses, KKR postponed its listing on the New York Stock Exchange, originally planned by year’s end, until sometime in 2009.

“This is the worst time to go public,” said Aswath Damodaran, a professor of finance at New York University. “In this market, nothing is going to be well received. This is not just a downturn, this is a crisis market.”

And with companies in the financial sector cast as the villains in the crisis, their prospects are even dimmer, he said.

FALTERING SECTOR

Financial stocks have been among the worst performers this year during the crisis.

The S&P Financial index , which tracks a variety of finance-related stocks, is down 51 percent this year, underperforming the broader market S&P 500 index .SPX which has fallen 37 percent.

While the crisis has battered such stalwarts as Goldman Sachs Group Inc (GS.N: Quote, Profile, Research, Stock Buzz), and Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz), the markets have also punished recent financial IPOs.

Other than Visa Inc (V.N: Quote, Profile, Research, Stock Buzz), the biggest-ever U.S. IPO in March with an $18 billion debut, none of the 32 financial-related IPOs since January 2007 can boast positive returns, according to Thomson Reuters data.

That performance has helped curb the market’s appetite for new financial IPOs.

Aside from Visa, the only stock flotation by a financial company this year was a $141 million deal by asset management company Fifth Street Finance Corp (FSC.N: Quote, Profile, Research, Stock Buzz) in June. Its shares are down 53 percent from the offer price.

In contrast, 31 financial services deals in 2007 in the United States yielded $15.1 billion in proceeds, making it the most active year of the decade.

But even notable IPOs from the class of 2007 have struggled. Shares of MSCI Inc (MXB.N: Quote, Profile, Research, Stock Buzz), an index provider spun off by Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz), have fallen 18 percent since its IPO a year ago, while Och-Ziff Capital Management Group (OZM.N: Quote, Profile, Research, Stock Buzz), an alternative asset management firm, is down 85 percent.

BRAVING THE MARKET

Despite the turmoil, six financial companies are in the pipeline with planned IPOs, totaling $2.5 billion.

They include Liquidnet Holdings, the electronic stock trading venue that hopes to raise $500 million, and asset management firm Artio Global Investors, a unit of Julius Baer (BAER.VX: Quote, Profile, Research, Stock Buzz), aiming for a $1 billion flotation.

Still, even well-known companies with pedigrees such as Artio, and fast-growing revenue like Liquidnet, are not sure to get a warm welcome when the IPO market thaws, one analyst said.

“Names right now don’t mean much,” said Scott Sweet, a senior managing director at advisory firm IPO Boutique. “Right now, financial companies are being lumped together and not being given the credibility they deserve.”

Part of the problem, Sweet said, is that investors are waiting to see if the federal government’s Troubled Asset Relief Program, part of its $700 billion rescue package, helps steady the ailing sector.

Another problem for lesser-known financial companies, including some smaller asset management firms, is that many lack analyst coverage, something Sweet said is essential to attracting large investors.

The firms will have to wait for the storm to pass, like their peers in other industries.

“You won’t see IPOs in any sector, least of all one where there’s a tremendous amount of uncertainty,” NYU’s Damodaran said. (Editing by Jeffrey Benkoe)