Ethanol hot with IPO investors

Fri Jun 16, 2006 2:53pm ET167

By Yung Kim

New York, June 16 (Reuters) - Ethanol may be rarity in Americans' gas tanks, but it's already revving up the U.S. initial public offering market.

First came ethanol producer VeraSun Energy Corp (VSE.N: Quote, Profile, Research). which raised its offering price amid strong demand then soared 30 percent in its market debut on Wednesday.

Next to market will be Aventine Renewable Energy Holdings, Inc. (AVR.N: Quote, Profile, Research), which mostly markets ethanol but also produces it. It's poised to go public later this month and may meet with similar success, analysts said this week.

Ethanol has become a buzz word among IPO investors, even as debate about the alternative fuel's merits continues, said Sal Morreale, who tracks IPOs for Cantor Fitzgerald in Los Angeles.

"All the focus will be on [Aventine], looking at the success of VeraSun," Morreale said.

Aventine is set to offer about a 19 percent stake in the company. Assuming a price of $39 a share, the midpoint of the forecast range, Aventine would have an initial market capitalization of about $1.6 billion.

The Pekin, Illinois-based company plans to use net proceeds to expand production capacity through acquisitions and construction as well as general corporate purposes.

On Wednesday, shares of VeraSun, which priced above the forecast at $23 a share, climbed 30 percent in their debut to $29.95. VeraSun has slid some 16 percent since then and on Friday afternoon was trading at $25.02.

VeraSun is the country's second-leading producer of ethanol, behind Archer Daniels Midland Co. (ADM.N: Quote, Profile, Research).

Hawkeye Holdings Inc., the third-largest U.S. ethanol producer, filed with the SEC May 30 for a $350 million IPO. Neither the terms nor the exchange have been set.

Aventine, which is seeking a New York Stock Exchange listing under the symbol AVR.N, is scheduled to offer 7.75 million shares for between $37 and $41 each, according to its most recent regulatory filing.

In 2005, Aventine produced 134.3 million gallons and sold 529.8 million gallons, representing approximately 13.5 percent of all ethanol sold in the United States during that period, according to its prospectus.

The stock's long-term value remains a question mark, said Francis Gaskins, an independent analyst and president of IPO Desktop.

"People are realizing that when supply meets demand, the ethanol producer's margins will be hurt," Gaskins said. "That could happen inside of 18 to 24 months."

HEXION IN FOCUS

Elsewhere on the market, Hexion Specialty Chemicals Inc., which will trade on the New York Stock Exchange under the symbol HXN.N (HXN.N: Quote, Profile, Research), is expected to price the largest U.S. initial public offering of the month next week, in a deal that could be worth more than $530 million.

The Ohio-based company plans to float 19 million shares, or about 22 percent of the company, in the IPO. Credit Suisse Securities LLC is the lead underwriter. Assuming a price of $26.50, the midpoint of the forecast range, the company will have an initial market capitalization of about $2.3 billion

All net proceeds will be used to pay off debt, according to the SEC filing.

Hexion's market debut Thursday will be followed the week of June 26 by Aventine and nine other IPOs. The flurry of activity is a sign that recent market volatility has not eliminated enthusiasm for stock flotations, said IPO analyst David Menlow.

"I would say talk of the IPO market's demise was very premature," Menlow added. "This is the first pause in the IPO market as a result of the broad market having a setback in price."