The IPO Buzz: Back to Work

The word came from Washington on Friday afternoon that the U.S. government’s 35-day shutdown was over until Feb. 15th. That gives the U.S. Securities and Exchange Commission and Wall Street bankers time to get back to work. But if you look closely, they already have.

The IPO Calendar already has five names on it – three for this week and two more for mid-February. The mid-February IPOs are unusual offerings and we will take a look at them in a minute.

This week’s traffic has two blank check offerings and a closed-end fund. Collectively, the blank check companies add up to $300 million. The closed-end fund’s stock is being offered at $20 a share with no amount of shares stated in the prospectus.

Let’s look at this week’s deals, organized by pricing and trading dates. Two deals are set to price on Monday evening, Jan. 28th, to trade on Tuesday morning, Jan. 29th. The week’s remaining IPO is expected to be priced on Thursday evening, Jan. 31st, to start trading on Friday morning, Feb. 1st.

Monday evening pricing for Tuesday morning trading

Andina Acquisition Corp. III (ANDAU – proposed), based in Bogotá, Colombia, is a blank check company targeting businesses throughout Latin America and focusing on the countries with stable political and macro-economic frameworks, including Brazil, Chile, Colombia, Mexico and Peru. From the prospectus: “We intend to capitalize on opportunities presented by high growth rates within these countries.”

PIMCO Energy & Tactical Credit Opportunities Fund (NRGX – proposed), based in New York City, is a newly formed closed-end fund seeking total return, with a secondary objective to seek to provide high current income. There can be no assurance that the Fund will achieve its investment objectives or that the Fund’s investment program will be successful, the prospectus said.

Thursday evening pricing for Friday morning trading

Pivotal Acquisition (PVT.U – proposed), based in New York City, is a newly formed blank check company exploring logistics technology and “last mile” delivery services, business technology services, online cyber security and off-line physical security services, media and entertainment services and franchise businesses.

Mid-February Duo

The other two IPOs on February’s calendar are Gossamer Bio (GOSS – proposed), a clinical-stage biopharmaceutical company, and New Fortress Energy (NFE – proposed), a natural gas provider.

Both issued an FWP filing (a free writing prospectus) announcing last week that the deals would proceed under a rarely used provision of the Securities Act of 1933. In each case, the IPO’s proposed price would become effective 20 days after the FWP filing date. (There’s the nerve-wracking matter of how the U.S. stock market might perform during that 20-day period.)

The question swirling around Wall Street was: Could it work?

To the best of anyone’s knowledge, it had never been tried.

But investors forced to hold an IPO for a five-day period is another story. It worked until the stock market turned south and people lost money.

Flip back to the history of the IPO market. In early 2004, there was a swarm of Chinese IPOs flooding into the U.S. capital markets. Those deals were dual listed – in China and the United States.

Naturally, the IPOs were Chinese and the Chinese rules applied. When a Chinese IPO is priced, investors cannot sell the shares before the five-day period elapses. In up markets, it works. But things don’t always go according to plan.

One classic example was the March 5, 2004, IPO of TOM Online, a Chinese mobile Internet company. Its American Depositary Shares (ADS) were priced at US$15.55 and the ADS closed its opening day at $15.58 on March 10, 2004. The Wall Street pros had given the ADS a 4-Star SCOOP rating (up about $5 per share). Those projections didn’t work out.

At the time, the Shanghai Composite Index was selling off from its then-high of 1,730.28 reached intraday on Feb. 23, 2004. By March 9, 2004 – the day before the TOM Online ADSs were to trade – the Shanghai Composite Index slid to close at 1,637.10, down 5.39 percent from its high. The damage was done.

So that is a cautionary tale from the IPO history book.

Nevertheless, we will learn more in the coming days about the trading dates of Gossamer Bio and New Fortress Energy.

February’s First Week

For the week of Feb. 4th, the IPO Calendar is blank, reflecting the impact of the federal government’s shutdown. But that could change on Monday morning, Jan. 28th, when the SEC’s doors should open to the music of a new-issue calendar coming to life.

Stay tuned.

Disclosure: Neither the author nor anyone else on the staff has a position in any stocks mentioned, nor do we trade or invest in IPOs. The author and staff do not issue advice, recommendations or opinion.