Investors found the A$4.60 to A$5.80 per share price tag too rich forcing the issuer to delay the A$500 million capital raising after a two-day institutional bookbuild.
Since Global Ethanol produces and sells 100% of its fuel offshore, lead arrangers Morgan Stanley and UBS were expecting to place the bulk of the shares with foreign institutions. But that wasnÆt to happen.
ôWe saw good interest yesterday in Australia and Asia and this carried through early in the US but then momentum slowed. People were jittery about the economic environment and even though interest rates in the US didnÆt go up, they were generally hawkish,ö says a source close to the deal.
This hesitation led to investors in Australia revising their orders. ôLocal investors are concerned about the performance of recent equity transactions, namely Emeco and Downer,ö says the source. ôMid-cap Australia has taken a bit of a knock as a result.ö
The deals he refers to are the listing of earth-moving equipment company Emeco whose share price is off 7% since it floated at the end of July, and the IPO of infrastructure services company Downer EDI which sold for A$8.40 at bookbuild in April and yesterday closed at A$5.40.
Trading conditions on the Australian Stock Exchange have been volatile in recent months with the benchmark S&P/ASX 200 index regularly experiencing wild upward and downward movements of 1.5% in a day.
Yesterday, when the Global Ethanol bookbuild was closing, the market dropped 62.8 points or 1.25%. The day was also underlined by press reports that the Australian government was abandoning the promotion of ethanol and other bio-fuels in favour of LPG conversion for cars.
But this news shouldnÆt have bothered investors in Global Ethanol given that most of its business is in the US where George Bush wants to displace 30% of the countryÆs fuel reliance with ethanol blends. The construction of new corn-based ethanol plants is expected to increase output from 4.8 billion gallons to 7 billion gallons by the middle of 2007.
Global Ethanol recently paid A$100 million for a 60% stake of AmericaÆs biggest farmer-owned ethanol producer, the Midwest Grain Processors Co-operative.
FinanceAsia's source wonÆt speculate on whether a listing in the US might have been a wiser course of action. ôThere was certainly enough support locally to warrant an Australian listing, just maybe not the capacity to take the full size.ö
The reason the deal fizzled probably lies in the way bookbuilds are managed in Australia. Domestic investors often base their orders and pricing appetite on feedback from offshore investors, because instead of opening and closing the domestic book during Australian business hours, the local book remains open overnight.
Morgan Stanley and UBS are now looking for ways to revise the offer structure so that the deal might proceed. ôWe have taken a couple of reverse enquiries following the book close,ö says the source. ôPrice revision is a possibility but we have other options open to us too.ö
Global Ethanol was due to start trading on the ASX at midday on Friday 11 August.
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