Four of Eight Planned IPOs Complete Deals

by: Renaissance Capital IPO Research
Eight deals were originally slated to begin trading this past week in what would have been, if all had priced, the busiest IPO week of the year. However, only four of the eight ultimately made it to market, reflecting subdued deal demand and investors' lingering risk aversion after last year's disastrous effect on returns.

Linkage Technologies (BOSS), China's leading provider of telecom software and IT solutions, was scheduled to trade on Thursday, Dec. 10, but was knocked out of the running earlier in the week with news of its being acquired by key competitor AsiaInfo. Linkage, one of the stronger companies in the IPO lineup before it withdrew, had planned to raise $143 million.

Two very similar REITs filed to debut on Wednesday: Chesapeake Lodging Trust (NYSE:CHSP) and Pebblebrook Hotel Trust (NYSE:PEB), both of which are newly formed and plan to acquire upscale hotels in the US. Pebblebrook successfully raised $350 million while Chesapeake's offering was indefinitely postponed. Led by the former CEO of LaSalle Hotel Properties, Pebblebrook has since posted a moderate gain of 5.7%. The two add to a rising trend of REITs filing to go public: a total of nine REITs have submitted their initial filings since Nov. 1, the most recent of which is Chicago-based Callahan Properties, in an effort to generate capital and take advantage of opportunities to purchase real estate assets at severely discounted prices.

Chinese ADRs have also been highly active, with two originally slated for Thursday: Trony Solar Holdings (TRO), which manufactures thin film solar modules, and China Nuokang Bio-pharmaceutical (NASDAQ:NKBP), the country's leading provider of blood-clotting medication. After lowering its proposed price range earlier in the day, Trony Solar shelved its deal due to concerns regarding its risky transition from the off-grid to the on-grid market. China Nuokang priced 5 million shares below the range, primarily because of its reliance on its flagship drug Baquting, and traded down 4% in its debut. Another Chinese medical company, radiotherapy center operator Concord Medical Services (NYSE:CCM), listed on Friday and priced within its $9.50-$11.50 range. Concord initially appealed to investors with its recent topline growth story and rising demand for cancer treatment in China, but has traded down 14% on risks associated with its business shift toward capital-intensive specialty hospitals.

Also included in Friday's crop were Ellington Financial (NYSE:EFC) and KAR Auction Services (NYSE:KAR). Ellington postponed while KAR went on to raise $300 million. Ellington, a specialty finance company with a portfolio of RMBS and derivatives, may have encountered resistance due to its high incentive fee and a proposed valuation that put it at a premium to book value.

Vehicle auction provider KAR priced its offering 25% below its $15-$17 range; the attractive valuation (18% discount to key peer Copart) may have been necessary to sway investors hesitant over its unfavorable leverage structure and single-digit growth rate.

The weak performances by this week's IPOs stand in contrast to the success of November's eleven deals, which have posted an average 15% return. Overall, investors continue to choose their deals selectively and remain valuation-sensitive, as has been the case throughout 2009.

Disclosure: No positions