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Athabasca Oil, Largest Canadian IPO Since 1999, Performs Worst Since 2007

Athabasca Oil Sands Corp., Canada’s largest initial public offering since 1999, has been the worst- performing IPO in more than two years.

The Calgary-based oil-sands developer that raised C$1.35 billion ($1.32 billion), fell 33 percent in the first month of trading, making it the second-worst Canadian IPO over the past five years. Rankings are based on Bloomberg data measuring stock performance in the first 30 days for 50 companies that sold at least $100 million in IPOs during that period.

Athabasca’s stock plunged because investors may have been concerned about the high costs to develop oil sands projects for a company with no track record, said Charles Maxwell, an analyst at Weeden & Co. in Greenwich, Connecticut. The drop may also put a damper on a Canadian IPO market on pace for the most sales since 2007.

“We’re obviously very disappointed by the performance,” said Kevin Sullivan, chief executive officer of GMP Capital Inc., the investment bank that led the sale with Morgan Stanley. “It’s not good for the IPO market, it’s not good for Athabasca and it’s not good for us reputationally.”

Athabasca, whose oil-sands projects attracted a C$1.9 billion investment from PetroChina Co. in February, initially aimed to raise C$750 million. Athabasca may have drawn buyers in anticipation of “a hot deal or takeout prospect” after other Chinese investors came in with a C$500 million order that boosted the size of the IPO, Sullivan said.

“Too many people with a 10-minute time horizon bought a 10-year story, and when it didn’t jump out of the gate for them to make their profits, they turned around and started selling,” Sullivan said. “Selling begets selling.”

Stock Declines

Athabasca rose 46 cents to C$12.45 yesterday in Toronto Stock Exchange trading, down from its IPO price of C$18 a share. The decline since the stock began trading on April 8 cut the market value to C$4.84 billion. The benchmark Standard & Poor’s/TSX Composite Index dropped 1.3 percent over the period.

“The young companies are questionable,” said Maxwell, who covers Calgary-based oil-sands producers Suncor Energy Inc. and Cenovus Energy Inc. “They have nothing except land and reserves.”

Investors are also concerned about the possible fall in oil prices that may hurt new companies operating in Alberta’s Athabasca Basin, he said.

“It’s just speculative for these young companies in Athabasca,” Maxwell said. “Institutions, after making big losses, tend to stick to older companies like Suncor.”

A message left with Athabasca CEO Sveinung Svarte wasn’t immediately returned.

‘Stacked Against It’

“The odds have been stacked against it,” said Michael Smedley, a money manager at Morgan Meighen & Associates, a Toronto-based firm that oversees about C$900 million including Athabasca shares. “I would hang onto it, in fact I would think of buying it personally. This is a very significant company in the oil sands.”

The Athabasca decline is “more of an isolated situation” and it hasn’t derailed other IPOs as the market recovers from a two-year slump, Neil Manji, national IPO services leader for PricewaterhouseCoopers LLP in Toronto.

Companies raised $2.05 billion in 43 IPOs in Canada this year, 13 percent more than in all of 2009, according to Bloomberg data. Among this year’s sales, Leisureworld Senior Care Corp. fell 5 percent in the first month after its C$190 million sale in March, while Northwest Healthcare Properties Real Estate Investment Trust rose 12 percent after it sold C$175 million in new stock in the same month.

Porter Airlines

Other Canadian companies that have filed to go public include Porter Aviation Holdings Inc., which is expected to sell about C$120 million in stock next week.

“We’re in the early stages of an IPO recovery,” Manji said. “We expect to see continued activity throughout the second and third quarter, and we still think that we could get to about a C$4 billion IPO market this year.”

Canada’s worst-performing IPO in the last five years was EarthFirst Canada Inc., a Calgary-based developer of wind energy projects, which fell 35 percent in 30 days after raising C$140 million in November 2007. EarthFirst filed for bankruptcy protection a year later.

The best-performing IPO was Lululemon Athletica Inc.’s $328 million sale in July 2007, which jumped 84 percent in its first month after the Vancouver-based retailer started trading on Nasdaq. Miranda Technologies Inc. of Montreal ranked second after rising 28 percent in the first month following its C$141 million IPO in December 2005.

To contact the reporter on this story: Doug Alexander in Toronto at dalexander3@bloomberg.net

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