Shares in Pekin ethanol maker Aventine fall in debut

From the Reuters Newsroom

June 29 13:50:00, 2006

(Reuters) Shares of ethanol provider Aventine Renewable Energy Holdings Inc. dropped 10 percent in their market debut Thursday, as jittery

investors questioned the potential profit growth in an industry in which production capacity is easy to add.
Aventine's difficulty also dragged down shares of VeraSun Energy Corp., another ethanol producer, which went public earlier this month. "The bloom could be off the proverbial ethanol rose," said Sal Morreale, who tracks IPOs for Cantor Fitzgerald in Los Angeles.
Investors have generally grown more antsy about initial public offerings in recent weeks, after the U.S. stock market has weakened and values have declined globally for more speculative assets.
Ethanol has been touted as an alternative to pricey gasoline and has become a new buzz word in IPOs. In addition to Aventine's $390 million offering on Wednesday and VeraSun's $420 million offering, Hawkeye Holdings Inc. filed with the SEC on May 30 for a $350 million IPO.

Made primarily from corn or sugar cane, the "green fuel" is blended with gasoline to help reduce emissions and petroleum usage.

But ethanol faces significant hurdles to widespread use, including high costs, limited land and water availability for crops and mixed governmental and corporate support.
Investors put aside these concerns in mid June, when shares of VeraSun, the second-largest producer of ethanol in the United States, rose 30 percent in their first day of trading.

Part of VeraSun's immediate success was due in part to a lack of ethanol supply, said Francis Gaskins, an independent analyst and president of IPO Desktop.

But that is quickly being addressed by a surge in expansion plans by ethanol producers.

"When they correct the supply/demand imbalance, it is going to cut right into gross margins," Gaskins said. "Some investors do not understand how easy it is to add supply in this marketplace."

Aventine plans to use some of the proceeds from the share sale to increase its capacity. The company markets ethanol for others as well as produces it. 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.

Shares of Aventine fell almost 10 percent to $38.75 on the New York Stock Exchange in afternoon trading.
The Pekin, Illinois-based company's 9.06 million-share initial public offering, which represents about 22 percent of the company, was priced at the top end of a $40 to $43 forecast range Wednesday, according to an underwriter.
The offering raised almost $390 million and valued the company's equity at almost $1.8 billion.
The offering and price range was increased from an initial 7.75 million shares at between $37 and $41.
Shares of VeraSun fell 5.2 percent, or $1.42, to $25.76 on Thursday, still above their IPO level of $23.00.