The IPO Buzz: Turn up the Heat

The June calendar is starting to fill up. For the moment, though, let’s go back to the end of May.
The hot Chinese solar sector take center stage as LDK Solar (NYSE: LDK proposed) plans to price 17.4 million shares at $25 to $27 each on Thursday evening. It is expected to start trading on Friday, which happens to be June 1.
For a clue about how LDK Solar might perform, look no further than the Chinese solar companies that have already gone public this year:
  • China Sunergy (NASDAQ: CSUN) priced its IPO at $11 on May 16. The IPO sold as high as $16.70 on April 17, and closed Friday, May 25, at $13.65, UP 24.1 percent from its initial offering price.
  • JA Solar (NASDAQ: JASO) priced its IPO at $15 on Feb. 6. The IPO sold as high as $28.88 on April 25, and closed Friday, May 25, at $23.25, UP 55 percent from its initial offering price.
{mosgoogle}Now let’s take a quick peak at May’s thundering IPO traffic. By May 25, bankers had priced 31 deals that raised $6.2 billion, according to U.S. Securities and Exchange Commission filings. Among those figures were five specified purpose acquisition companies, also known as SPACs or “blank check” companies, which raised $2.9 billion.
This makes May 2007 the busiest May since 1999 when bankers priced 52 IPOs.
Frothy vs. Fundamentally Sound
June’s IPO calendar already lists six deals for its first week, and that’s only the beginning. There are many more in the wings, such as The Blackstone Group (NYSE: BX proposed), waiting to jump in line to get priced.
In view of this traffic, one can’t help but think the IPO market might be getting frothy.  
The answer: No.
A frothy market is characterized by the opening-day performances. Remember in 1999, deals were coming off the IPO launching pad with opening-day moonshots of 100, 200 and 300 percent each?
In 1999, bankers priced 543 IPOs. Their average opening-day performance was a gain of 77 percent.
In 2007, through Friday, May 25, bankers have priced 80 IPOs (excluding unit deals). Their opening-day performance has averaged a gain of 10.8 percent.
Today’s IPO market has a long way to go to before it gets anywhere near that frothy level of yesteryear.   
So stay tuned for what could be an interesting summer.
For subscribers: Please check the IPO SCOOP Rated Calendar for the latest Street Consensus of Opening Premium ratings, and stand by for IPO Alert e-mails for any changes in those SCOOP ratings.
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