London’s troubled IPO market sees signs of life

David Hellier
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WHISPER it softly, but there are signs that the iciness that has characterised the London IPO market is beginning to thaw.

Over the past couple of weeks, two foreign-based groups, Ophir Energy and Global Ports, have successfully raised funds in the London markets, in contrast to the many groups who have had to pull their flotations over the past year as it became obvious there was insufficient demand for their shares.

Ophir Energy, an African-focused exploration company backed by Lakshmi Mittal, raised around £300m.

Those who worked on the float say it got through by sticking to a realistic valuation and by tying up some of the existing investors such as Mittal and Och Ziff in a Glencore-like cornerstone investor type relationship. Even so, they say that around half of the new money raised came from new as opposed to existing investors.

Ophir did have its own IPO adviser, David Waring from Lexicon Partners, and he seems to have helped facilitate the transaction rather than stoke up tension between the company and the book-runners by looking for an unrealistic price.

The group and its advisers chose to price the new shares at 250p, the bottom of its range, and yesterday the shares were trading at around that level in conditional trading.

The Russian-backed Global Ports saw its shares trade at around a 17 per cent premium on its first day of trading and its shares are still around 10 per cent ahead of the float price.

Global Ports priced its float at a big discount to its peers in the sector and its owners have a history of conducting new issues at reasonable prices. In addition the story here was one more of a company wanting a UK listing rather than of a group being desperate to raise cash.

Meanwhile there’s been a lively debate going on about the kind of message bookrunners send out to investors during the process of bookbuilding. BarCap’s Sam Dean is against bookrunners giving messages that books are covered – taken as a sign that an IPO will fly – because he feels that in the absence of such messages, confidence collapses.

Craig Coben, head of equity capital markets at Bank of America Merrill Lynch for EMEA, thinks otherwise.

“My experience is that the success of a deal rests on market conditions and the strength of the story. Investors expect to see levels of coverage and, in my view, transparency is a good thing.”

The debate has only just started.