RPT-IPO VIEW-Companies using IPOs to fix balance sheets
September 7th, 2008 | by admin |(Repeats item initially filed late on Friday.
By Phil Wahba
NEW YORK, Sept 7 (Reuters) - With the market for initialpublic offerings as tight as it has been in years, investorsare paying closer attention to how companies plan to use theproceeds.
In particular, they want to see companies use at least partof the money on the company itself and not just allow partnersto cash out. The emphasis on bolstering finances comes as IPOinvestors demand healthier balance sheets and pay attention togrowth prospects. Without these, investors are quick to shunflotations in favor of more attractive offerings down theroad.
“The use of proceeds is even more scrutinized in thismarket,” said Mark Hantho, head of equity capital markets forthe Americas at Deutsche Bank AG (DB.N: Quote, Profile, Research, Stock Buzz). “Having a moreconservative balance sheet is being more rewarded in the marketthan it has in a long time.”
Companies seem to be getting the message. A majority offlotations so far this year have come to market with plans touse part of the proceeds to cut debt. Investors are cheeringthe trend because the credit crunch has sent debt and financingcharges higher.
Earlier this decade, companies planning to go public ran upbig debt loads and became too levered for today’s tastes.
“In the 1990s, companies were newer, so a typical IPO wouldbe capitalized 100 percent with equity,” said Doug Baird,co-head of equity capital markets at Banc of America SecuritiesLLC (BAC.N: Quote, Profile, Research, Stock Buzz). “But that has changed over time and more and morecompanies want and need to be de-levered.”
So now going public is not just about building out an ideaor to fund research and development, but also about making surea company is properly capitalized, he said.
