Oct. 30 (Bloomberg) -- The market for initial public offerings, hurt by the worst returns in at least 14 years, suffered another setback after AEI pulled its sale.

Enron Corp.’s former international energy business postponed its IPO yesterday, citing “market conditions” after underwriters earlier cut it by 58 percent to 21 million shares and lowered the forecast price range. The expected size of the offering had fallen to under $300 million from $800 million after Ashmore Group Plc, the London-based fund manager that controls the company, withdrew.

“The underwriters just misjudged the market,” said Francis Gaskins, president of IPODesktop.com in Marina del Rey, California. “A lot of these private-equity deals have not worked out, because the underwriters are under pressure by the issuers to get top dollar.”

AEI, the operator of power plants and natural-gas pipelines in Latin America and other emerging markets, was trying to cash in on the biggest U.S. stock rally since the 1930s even as IPO returns have been the worst since at least 1995. While sellers such as Blackstone Group LP have reaped $7.4 billion since September in the busiest period for IPOs in almost two years, investors are now questioning whether to pay for a company with almost $3 billion in debt after snapping up energy assets from Brazil to China.

‘Market Conditions’

While Ashmore pulled out of the deal, the George Town, Cayman Islands-based company boosted the number of shares it planned to sell to 20 million from 16.7 million yesterday, according to a regulatory filing. Shareholders including New York-based Goldman Sachs Group Inc. were going to sell 1 million shares, down from the prior plan of 33.3 million. The stake held by Ashmore, which oversees about $31 billion, would have dropped to 51 percent from 55 percent.

“We have decided not to proceed with an initial public offering of our shares at this time due to market conditions,” AEI said in a statement dated yesterday. “We continue to see a number of attractive opportunities in owning and operating essential energy infrastructure businesses in emerging markets worldwide.”

AEI planned to use proceeds from the IPO to repay debt. At $12.50 a share, it would have raised $233 million. The company almost doubled its net debt to $2.9 billion in less than three years as it expanded operations to 19 countries in Latin America, central and eastern Europe, and Asia.

Venezuela, Colombia

The company, whose Chief Executive Officer James Hughes is a former Enron executive, has its main office in Houston. It operates in developing countries to tap demand for energy in economies that the Washington-based International Monetary Fund estimates will expand 5.1 percent next year, almost four times the rate of industrialized nations.

It also has businesses in Venezuela, where President Hugo Chavez nationalized some utilities in 2007, and Colombia, where policy makers in the same year temporarily implemented controls on capital by forcing companies taking loans abroad to deposit 40 percent of the funds in the central bank for six months.

The shares would have begun trading on the New York Stock Exchange today under the ticker AEI. New York-based Citigroup Inc., Goldman Sachs, JPMorgan Chase & Co. and Zurich-based Credit Suisse Group AG are running the sale.

“It seems as though the deal has suddenly been branded as damaged goods,” said David Menlow, president of IPOfinancial.com in Millburn, New Jersey.

Ashmore, Enron

Ashmore agreed to buy Enron’s Prisma Energy International Inc. for about $1.8 billion in May 2006. At the time, Prisma Energy owned natural-gas pipelines in South America, a Brazilian power distributor and electricity plants in eight countries.

Enron’s assets were sold after the Houston-based energy trader declared what was then the largest U.S. bankruptcy in December 2001 amid allegations of accounting fraud.

“Certainly the Enron association, rightly or wrongly, probably does not help” AEI’s IPO, Walter Todd, who manages $750 million as co-chief investment officer at Greenwood Capital Associates LLC in Greenwood, South Carolina, said before the deal was postponed. “It would be wrong for an investor not to look at it because of that. But I just think that’s the reality of the heightened sensitivity people have today.”

AEI earned 73 cents a share in net income from continuing operations in the six months ended in June, which implies a valuation of 10.3 times profit over a full year, based on data provided by the company’s regulatory filing.

Duke Energy, AES

Duke Energy Corp., the Charlotte, North Carolina-based owner of utilities in the U.S. Southeast and Midwest, trades at 13.5 times 2009 estimated earnings. Arlington, Virginia-based AES Corp., the U.S. power producer with operations in more than two dozen countries, has a price-earnings ratio of 12.3.

Initial share sales evaporated in the fourth quarter of last year after New York-based Lehman Brothers Holdings Inc. filed for the world’s largest bankruptcy and spurred a credit- market freeze. The drought lasted until September as an average of two U.S. companies a month went public, the slowest pace since at least 1995.

IPOs rebounded after the Standard & Poor’s 500 Index rallied more than 50 percent from a 12-year low in March and the U.S. government lent, spent or guaranteed $11.6 trillion to shore up banks and revive the economy. IPOs since September accounted for 74 percent of this year’s $11.5 billion in sales.

Lagging Returns

The sales include those by private-equity firms, which are trying to exit some of the $1.4 trillion in deals they made in 2006 and 2007 and return cash to their investors. New York-based Blackstone, the world’s largest private-equity firm, is planning to list as many as eight companies, according to a person familiar with the situation.

The revival hasn’t coincided with bigger returns.

The IPOs of 18 American companies since September through yesterday have trailed the S&P 500 by 0.2 percentage point on average in the first month of trading, the worst performance in Bloomberg data going back 14 years. Offerings by U.S. companies have beaten the S&P 500 by an average 21.3 percentage points after their listings, the data show.

“Demand for stocks will probably go to proven entities, rather than new entrants,” said Jack Ablin, chief investment officer of Harris Private Bank in Chicago, which oversees $60 billion. “It’s harder for new companies to entice buyers. Companies that are trying to access the capital markets to pay down debt are having a poor reception.”

To contact the reporters on this story: Michael Tsang in New York at mtsang1@bloomberg.net; Eric Martin in New York at emartin21@bloomberg.net.

Last Updated: October 30, 2009 06:22 EDT