Chemoil prices relaunched IPO at the bottom

The new offering is only one-third the size of the initial deal due to a lower valuation and fewer shares. The chairman buys 16%.
Seven weeks after it pulled its Singapore initial public offering due to a lack of demand at the targeted valuation, Chemoil Energy has raised $101 million from a sharply reduced offer.

Through a combination of a lower valuation and fewer shares, the relaunched offer accounted for about one-third of the initial one, which attempted to raise between $285.7 million and $373.6 million.

Still, the company, which is an integrated supplier of marine fuel, was able to raise some fresh capital towards the purchase of more ships and barges and the construction of new terminal facilities with the aim of boosting volumes and expanding margins. Some of the money may also be used for potential acquisitions and joint ventures.

In the listing document, the company said it is currently evaluating potential market expansion projects in the United Arab Emirates, India, Egypt, and the US.

JPMorgan and UBS remained joint bookrunners for this second offer, while Morgan Stanley chose to withdraw.

Even with the significantly lower valuation, Chemoil priced the deal at the bottom of the $0.45 to $0.55 range, but according to a statement issued by the company it did at least have a bit of a buffer this time as the 95% institutional offer was 2.2 times covered at the end of the three-day bookbuild.

However, the companyÆs founder Robert Chandran who is also both the executive chairman and CEO, did buy 16% of the offering, which will leave him with a 43.6% stake in the company at the time of listing.

Having spent a fair amount of time since the previous offer was cancelled to explain the companyÆs story to investors, joint bookrunners JPMorgan and UBS were able to include some of the accounts that hesitated last time, or that simply felt they hadnÆt had the time to properly look at the offering. According to sources, the deal was launched with the book already covered.

The final tally was said to have included about 40 investors, comprising a mix of Singapore-dedicated funds and funds focusing on the petrochemicals sector. Asia-based US money accounted for the bulk of the interest with some demand also out of the Middle East.

Key to the relaunch, observers say, was the fact that the companyÆs third quarter earnings showed that it was doing well even in the face of the sharp drop in crude oil and marine fuel prices that coincided with the roadshow for the first offering.

Many investors got spooked by that decline even though the company and the bookrunners stressed that Chemoil has very little direct exposure to oil prices as it essentially adds a fixed commission on top of the price it pays for the fuel at the refiners. Still, the possibility that the decline in fuel prices û crude oil fell 22% between August 7 and October 3 when the company withdrew its offer û could be signalling a slowdown in the global economy and thus have a negative impact on the shipping industry meant many investors chose to walk away at the time.

ôLast time the company was being sold on the basis of strong growth and what it is aiming to become over the next 18 months to two years, and while investors liked the prospects they werenÆt sure about the execution. This time, the price is set to reflect a fair multiple for the company in its current form,ö one observer says.

However, one observer notes that while the third quarter results show that the company was profitable in a declining oil price environment, it also shows a drop in sales volumes both in the second and third quarter which could be a sign that demand is indeed slowing down.

The new price range values the company at 7.2 to 8.8 times its 2007 earnings. That pitched it at a discount to Noble Group, which trades at about 10-11 times, and which was used as a comparable by many investors last time around given its similar business and the fact that it too is listed in Singapore. Describing itself as a global supply chain manager, Noble essentially supplies and trades agricultural, energy and industrial products.

The new range was well below the 11.5-14 times that Chemoil sought last time. Having failed to attract sufficient interest at that level, the bookrunners reduced the bottom of the $0.65 to $0.85 price range to $0.55 for a forward P/E of 9.9 times on the last day of the bookbuild, but investors were still not satisfied and the deal was eventually pulled.

Considering the new valuation too cheap, Japanese oil company Itochu Corporation decided to reduce the number of shares that it was due to sell as part of the offering to 64.6 million shares from 73.4 million. Similarly, the company more than halved the number of new shares on offer, resulting in a combined offering of only 224.8 million shares, or 15% of the company, versus 439.5 million back in September.

There is a 15% greenshoe that could increase the total proceeds to $116 million, however. The 5% of the deal that wasn't sold to institutions will be offered to Singapore retail investors in a public offer that opened yesterday and will run until December 12. The shares are scheduled to start trading on December 14.

Essentially a ôgas station for shipsö, Chemoil controls the entire flow of marine fuel from the purchase at the refiners, through the blending of it to proper quality, transportation and storage, to the delivery to the end-customer. Its customers include global shipping giants like AP Moller-Maersk, Evergreen Marine and Yang Ming Marine Transport.

Itochu, which held 50% of the company prior to the IPO, will see its stake drop to 38.5%.
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