Q4 IPO Market Off To Dismal Start

NEW YORK (Reuters) – After concluding its most dismal quarter in nearly six years, the market for initial public offerings looks set to continue its losing streak.

The fourth quarter began with an inauspicious start.

Texas-based Safety-Kleen Inc, a provider of environmental services for the oil industry, withdrew its $350 million IPO on Thursday, citing “adverse market conditions.” Had the deal launched, it would have broken a nearly two-month dry spell without a single IPO in the United States. There are no IPO pricings current scheduled, Dealogic’s deal calendar reports.

There were no U.S. deals in September, the first time since 2002 that the month was devoid of IPO activity.

“The general market is so volatile right now and when there is so much uncertainty, an IPO is the first thing that gets really unattractive,” Sal Morreale, who tracks IPOs for Cantor Fitzgerald in Los Angeles, said, adding that risk-averse investors seek stability before buying IPO’s.

Safety-Kleen tried to price its deal in a week that started with a near 7 percent drop in the Dow Jones Industrial Average’s history on Monday followed by a 4.68 percent rebound on Tuesday, only for the index to drop again on Thursday and Friday.

The Chicago Board Options Exchange Volatility Index, known as the VIX .VIX or fear index, had a record high close of 46.72 on Monday, and receded slightly to 45.14 on Friday, hovering at levels not seen in six years. Fear is the enemy of IPOs.

“Underwriters have other issues to deal with right now,” said Francis Gaskins, an analyst with IPO Desktop. “Not only are IPOs harder to do because of the lack of credit availability, but it also makes it harder for them to focus on these deals when Wall Street is in the middle of a restructuring.”

Lehman Brothers filed for bankruptcy last month, with Barclays Plc (BARC.L) buying up its solid assets at rock-bottom prices.

Bank of America (BAC.N: Quote, Profile, Research, Stock Buzz) purchased Merrill Lynch (MER.N). JP Morgan (JPM.N) bought Washington Mutual WAMUQ.PK and on Friday, Wells Fargo (WFC.N) and Citigroup (C.N) were tussling over buying Wachovia (WB.N).


Outside the United States, the outlook for the IPO market remains unpromising.

There was only one IPO last week, a $10.1 million deal by Chinese biotechnology company Bloomage Biotechnology (0963.HK), which began trading on the Hong Kong Stock Exchange on Friday.

It is the first time since April 2003 that a week has gone by with only one IPO in the world, according to Thomson Reuters data.

September saw 21 deals yield $232.5 million worldwide; September 2007 saw 63 issues yield $11.6 billion.

And the future is bleak. The only global IPO on the calendar with a scheduled pricing date is a $658 million offering set for next week by Renhe Commercial Group, a Chinese developer of underground malls, on the Hong Kong Stock Exchange.

Last year’s fourth quarter was the second-busiest of the decade for global IPOs, with 452 deals yielding nearly $103.5 billion. Even the United States, where the IPO market was showing signs of slowing down, 60 deals netted $10.1 billion.

But as the credit crisis spreads, and the specter of a recession depresses stocks, the prospects of an IPO recovery in the fourth quarter are dimming.

There were no new filings last week by companies seeking to issue new stock in the United States. But in a sign that they are readying to try to go public, two companies, Patriot Risk Management Inc, a Fort-Lauderdale, Florida-based workers’ compensation risk management business, and Grand Canyon Education Inc, an Arizona provider of on-line post-secondary education services, both amended their regulatory filings to establish terms for their IPOs.

Typically, after a late-summer break, IPO activity picks up in the fall, but this year, analysts are doubtful.

“There is usually a flurry of activity after Thanksgiving, but we don’t expect that to be the case this year,” Morreale said. “There is no appetite for IPOs right now.

“The fourth quarter is going to be a lot worse than last year,” he said.

By Phil Wahba and Jui Chakravorty Das

(Editing by Leslie Gevirtz)