Investors show little appetite for IPOs

EQUITY capital market bankers have high hopes for Europe's initial public offerings this year, but tepid investor interest so far might crush their optimism as deals get shelved or ditched.

Sentiment towards IPOs has deteriorated in the past week, with Belgian chemical company Taminco withdrawing its flotation, the UK's Pets at Home opting for a trade sale rather than an IPO, and Helikos in Germany raising a below-target 200 million ($277.5m).

So far in 2010, Europe has registered three major IPOs raising a combined $3.1 billion, almost 40 per cent of last year's total volume of $7.9bn. But it may be difficult to reach the $40bn that bankers have targeted this year.

The weakening of appetite is partly a product of volatility across financial markets due to worries over the fiscal crisis in Greece, China's financial tightening and banking regulation changes proposed by US president Barack Obama. IPOs are facing discrimination from investors as they are not a "must-have", said bankers. When market risks are on the rise, fund managers are more reluctant to sell other stocks in their portfolios to invest in IPOs of companies that lack a track record.

Pets at Home was bought by private equity firm Kohlberg Kravis Roberts last week at a higher-than-expected valuation of 955m. An IPO would probably have priced it at about 800m, bankers said.

Other IPO candidates, including top German cable firm Kabel Deutschland and British fashion retailer New Look, might go down the route of selling themselves to trade buyers if public markets do not accord them suitable.

Top aluminium firm UC Rusal got its IPO away in Hong Kong and Paris last week, but the Russian firm's shares fell heavily on their debut. Meanwhile, Helikos, a company set up to buy businesses, also fell short of its targeted minimum proceeds of 250m due to a lack of investor interest.