Market turmoil, weak financials could hurt Global Energy's IPO plan

Business Courier of Cincinnati - August 17, 2007

by Steve Watkins, Staff Reporter

The stock market's recent struggles could put the kibosh on a local company's initial public stock offering.

Global Energy Inc. filed plans with the Securities & Exchange Commission in June to raise up to $350 million through an IPO. The downtown-based company with no revenues or profits last year is building one plant and has plans for several others to convert coal and other carbons into cleaner-burning synthetic gas.

It has incurred operating losses and negative cash flows since its CEO, Harry Graves, founded it in October 1988. It doesn't expect any revenues until 2010. It's asking investors to bank on the growth potential of alternative energy.

Despite its potential, that lack of profit history or revenue growth could make it tough to raise money in the public markets these days, said Francis Gaskins, president of Los Angeles-based IPOdesktop.com, an IPO research firm.

"I don't think it's going to work," Gaskins said. "The market has tightened up. Unless you have revenue and profits, it's really hard to go public in this environment. I think that window was probably open six months ago, but the market is pretty much back to fundamentals."

Still, Global Energy is proceeding with the offering, said Steve Rolls, the company's CFO. Most indicators show the IPO market is still strong, he said.

In fact, IPOs are on pace to increase this year. Through Aug. 14, 149 companies had gone public, according to Renaissance Capital's IPOhome.com. That's an annual rate of 240, but that doesn't account for the market's recent woes. The past two years had 198 and 194 IPOs, respectively.

In response to Gaskins' point about the window closing for IPOs with no profit history, Rolls said other factors can play into IPO success. Global Energy's focus on alternative energy should help it.

"There's been significant interest in that area," Rolls said.

Gaskins agreed that the surging interest in clean fuel could be a hook for investors. "These guys could be a big hit, when it hits," he said.