Money manager William Fries went to India in the summer of 2010 in search of investments for his Thornburg International Value Fund. Visiting companies in Mumbai and Delhi, he found they kept diesel backup generators on hand for the power interruptions that are common as the country struggles with an inadequate electricity supply.
That led Fries, four months later, to buy shares in the $3.5 billion initial public offering of Coal India Ltd., the state-owned coal producer. He reasoned that sales of India’s main power-plant fuel would grow as more generation is added, helping the company’s earnings.
The bet has paid off. Coal India shares soared 67 percent through May 31 from their price in the IPO on Oct. 25. That’s the best performance for any initial share sale that raised $1 billion or more in the fourth quarter of 2010, the busiest quarter ever for new share issuance.
Returns were positive for 11 of the 14 sales in this ranking, Bloomberg Markets magazine reports in its August issue. The average gain was 15 percent.
Fries, a managing director at Thornburg Investment Management Inc. in Santa Fe, New Mexico, continued buying Coal India as the shares climbed after the IPO. “The demand for their product is going to be there,” he says. “India has a big shortage of electricity, and they’re going to be building lots of power plants over the next decade.”
The most successful IPOs from the fourth quarter were primarily old-line commodities businesses -- sold by governments rather than venture capitalists. More recently, Internet companies have garnered the most attention in equity capital markets. LinkedIn Corp. shares doubled on May 19, their first day of trading.
A total of $127 billion was raised globally in IPOs in the fourth quarter, more than in all of 2009, helped by a stock market rally that lifted the MSCI World Index as much as 86 percent above its March 2009 low.
The third-best performer, after Coal India, was Malaysia’s Petronas Chemicals Group Bhd., which was spun off by the state-owned oil exploration and production company. Its shares gained 39 percent through May. In fourth place, Australia’s QR National Ltd., a coal-train operator that was sold by the Queensland state government, returned 35 percent.
AIG and GM
Two companies that are partly owned by the U.S. government conducted IPOs in the fourth quarter: American International Group Inc.’s Asian unit and General Motors Co. AIG’s sale in Hong Kong of $20.5 billion of AIA Group Ltd. shares performed well, gaining almost 40 percent and claiming the second slot in the ranking. General Motors shares fell 3.6 percent, making it one of just three companies in the ranking whose stock was below its IPO price as of the end of May.
The Coal India IPO was the biggest in Indian history. Prime Minister Manmohan Singh’s government took advantage of rising equity markets to sell the world’s largest coal producer, part of a campaign to shed state-owned assets.
“There was no doubt Coal India would be the star deal of the disinvestment program,” says Sumit Bose, secretary of the Department of Disinvestment, which runs the government privatizations. “But we hadn’t anticipated the response to it would be so strong.”
The IPO has been a bonanza for buyers compared with the benchmark Bombay Stock Exchange Sensitive Index, which lost 8.9 percent during the same period amid concern that accelerating inflation might derail the country’s growth. Coal India stock outperformed the MSCI World Index almost sevenfold.
Sold at a Discount
The shares were offered at a discount to other publicly traded coal producers such as Peabody Energy Corp. in the U.S. or China Shenhua Energy Co., based on price-earnings ratios. Investors bid for at least $48.7 billion of Coal India shares, or 14 times what was offered.
Aside from the Indian government, Thornburg Investment was the biggest holder of Coal India stock in late May, according to data compiled by Bloomberg from regulatory filings. Fries’s $30 billion International Value Fund returned 7.4 percent through the first five months of this year.
Share sales of Asian companies dominated the equity capital markets last year, and that fact is mirrored in the ranking, in which half are Asian. U.S. companies’ portion of the world’s IPOs fell to an all-time low last year.
Where companies are choosing to sell their shares has also shifted east. In 2010, Hong Kong and mainland Chinese listings accounted for 45 percent of all IPOs by dollar value compared with just 16 percent for the U.S. As recently as 2006, the U.S. and U.K. were the most popular locales for new share sales, with a combined 34 percent of the market, versus 21 percent for Hong Kong and China.
Petronas Chemicals, the largest IPO in Malaysia’s history, was part of Prime Minister Najib Razak’s plan to attract more overseas investment by selling state-owned assets. The petrochemicals unit of the state oil company priced its shares at the top of its projected range.
The shares were added to the FTSE Bursa Malaysia KLCI Index three days after their market debut, making them a must-own for some funds. The parent, state-owned Petroliam Nasional Bhd., known as Petronas, manages the country’s oil and gas reserves.
The IPO of QR National raised $4.2 billion for the Queensland government as part of a program to generate A$15 billion ($16 billion) through asset sales. Queensland Premier Anna Bligh is trying to make up for revenue lost during the global recession and strengthen the state’s finances. The state lost its top credit ratings in downgrades by Standard & Poor’s and Moody’s Investors Service in 2009.
Three European companies in the ranking managed double-digit returns. Norwegian insurer Gjensidige Forsikring ASA raised $1.9 billion in the country’s biggest initial share sale in nine years. Its shares rose 17 percent through May.
Enel SpA, Italy’s largest utility, raised $3.4 billion by spinning off its renewable energy unit, and those shares gained 21 percent.
In Europe, the Middle East and Africa, the fourth quarter was the busiest since mid-2008, Bloomberg data show. Deals got done even amid concern that Greece, Ireland, Portugal and other countries might not be able to make good on their sovereign debt. The region this year may top the $165 billion that was raised in IPOs in all of 2010, Ernst & Young LLP said in January.
The rush of deals in the fourth quarter came partly because of pent-up supply as companies waited for stronger markets to support their sales, says Raj Dhanda, head of global capital markets at Morgan Stanley.
“There was a lot of cash that was ready to be put to work, and the investors felt comfortable that the volatility had subsided for the near term, that they could focus on new issues,” he says. “The companies raising capital were very aware of the fact they’d been shut out of the markets for a prolonged period of time, so they weren’t going to wait if they could go.”
While the IPO volume in the fourth quarter of last year was good for bankers such as Dhanda, government ties restrained investment-banking fees in several transactions.
Underwriters of the Coal India share sale, including Citigroup Inc., Deutsche Bank AG and Bank of America Corp., earned a fee that was a fraction of 1 percent for their work -- much lower than the average of 3 percent issuers paid for IPOs worldwide last year. General Motors paid its underwriters 0.75 percent.
Banks were competing to curry favor with governments and associate themselves with landmark share sales, says Steven Kaplan, a professor at the University of Chicago Booth School of Business. “The banks appear to have given substantial discounts to companies that were owned by the government,” he says. “Doing the very large, very public deals gets you higher in the league tables and allows you to advertise for future deals.”
Of course, poorly performing deals may have the opposite effect. Shares of Denmark’s Pandora A/S, which makes and markets silver and gold jewelry, charm bracelets and beads, dropped 16 percent through May.
Pandora, the biggest Danish IPO in 16 years, surged 25 percent on its first day of trading in Copenhagen and then slid when its 2011 sales forecast was less than analysts expected.
With Facebook Inc., Groupon Inc. and other Internet companies queued up to sell shares, investors might be reassured that Mail.ru Group Ltd. came in fifth in the ranking.
The Russian operator of social-networking sites, which is also an investor in Facebook, was the biggest Internet stock to go public during the fourth quarter, and it gained 24 percent through May 31.
Still, its shares at that point were already down more than 20 percent from the high they touched 10 weeks after going public. The winning performance of the government-backed commodities companies at the top of the ranking was more lasting.