New Fortress Energy LLC has become the first operating company to go public this year, but the stock’s slump in its trading debut suggests investors are fully feeling the current winter chill.
The natural gas and energy infrastructure company’s stock
fell as much as 8% before recouping some losses, after the company priced the deal at $14, $1 below its proposed price of $15.
The company sold $200 million shares to raise $280 million. Morgan Stanley, Barclays, Citigroup and Credit Suisse were lead book-runners on the deal with Evercore, Allen & Co., JMP Securities and Stifel acting as co-managers. Proceeds of the deal will be used to complete the construction of various facilities and for general corporate purposes.
The deal has reopened the IPO market, which was closed during the recent government shutdown as Securities and Exchange Commission officials were unable to process registration statements. Some experts say fears of another shutdown if President Donald Trump rejects a border deal—as he has threatened— are discouraging companies from attempting a deal and keeping investors on the sidelines.
But Kathleen Smith, principal at Renaissance Capital, a provider of institutional research and IPO exchange-traded funds, said the government shutdown is not likely to be a factor in today’s price movement.
“Investors have been risk averse,” she said. “New Fortress is an interesting energy infrastructure play backed by the pros at Fortress, but it is early stage. We can’t judge its success by one day of trading.”
New Fortress describes itself as an integrated gas-to-power company “that seeks to use “stranded” natural gas to satisfy the world’s large and growing power needs.
“Our mission is to provide modern infrastructure solutions to create cleaner, reliable energy while generating a positive economic impact world-wide,” it says in its IPO prospectus.
The company has a four-part liquefied natural gas production and delivery model that works like this: It enters long-term, mostly fixed-price contracts for feedgas, the dry gas that is used as a raw material for LNG plants. It then liquefies that gas at or near the site of extraction.
It uses its own logistics assets to delivery LNG to customers, taking it from tankers to large marine vessels. It has long-term charters for large-scale floating storage units that can move LNG to terminals in the Caribbean from a Delaware River port within five days. It also owns its own terminals, which can handle dirtier distillate fuels along with LNG. Its goal is to build 10 to 20 downstream terminals and five to 10 liquefaction facilities in the next five years.
The company had revenue of $80.9 million in the nine months to end September, up from $72.0 million in the year-earlier period. But its loss widened to $43 million from $19 million.
“The net proceeds from this offering will not be sufficient to fully execute our business plan,” says the prospectus. But the company expects to have enough cash to build and develop three key facilities and will borrow the remaining funds needed.
There were 17 IPOs in the same time frame in 2018 and some big private companies, including Uber and Lyft, are expected to come to market this year.
New Fortress is the first real IPO of the year; two so-called SPACs, or special purpose acquisition companies, braved the market earlier this week. Also called blank-check companies, those are entities that have no business until they acquire one. The money they raise in an IPO is held in a trust until they identify a target to pursue with the funds they have raised.
Andina Acquisition Corp. III
raised $100 million in a deal that priced on Monday. That stock is currently 0.4% above its issue price. Pivotal Acquisition Corp.
raised $200 million in a deal that priced late Wednesday. That stock was last down 12%.
The Renaissance IPO ETF
was up 2% Thursday and has gained 18% in 2019 so far. The Renaissance International IPO ETF
was flat, but is up 6% in 2019.
The S&P 500
and the Dow Jones Industrial Average
have fallen about 5% in 2019.