Renewable Energy Tests U.S. IPO Market in First Deal of 2012

Renewable Energy Group Inc., the biodiesel maker that hasn’t posted an annual profit since 2008, will test investor demand for new shares in the first U.S. initial public offering this year.

The Ames, Iowa-based company, which turns ingredients including soybean oil into biodiesel for cars and trucks, plans to raise as much as $108 million offering 7.2 million shares for $13 to $15 each today, according to a regulatory filing. Renewable will use the proceeds to buy a factory it is currently leasing and to invest in new processing technologies.

The biodiesel maker is one of at least eight companies that have scheduled dates to complete U.S. offerings so far this year, even as those that went public in 2011 fell an average of 5.9 percent through Jan. 13, data compiled by Bloomberg show. Renewable is attempting the first biofuel IPO since June, when Kior Inc. raised $162 million and then lost more than 30 percent of its value.

“The companies on the calendar are hoping for a better risk appetite,” said Peter Sorrentino, who helps oversee $14.5 billion at Huntington Asset Advisors in Cincinnati as a senior portfolio manager. “It’s been quiet for some time now.”

Renewable’s Value

The midpoint of the IPO price range would value Renewable Energy at $401 million, or about 0.6 times revenue of $627 million in the 12 months through Sept. 30. That’s about three times the comparable ratio of 0.2 for Archer-Daniels-Midland Co., the world’s largest grain processor, which has a market value of more than $19 billion and also makes biodiesel.

Renewable is a “pure commodity business,” whose profitability depends on how it hedges against price changes, said Pavel Molchanov, an analyst at Raymond James & Associates Inc. Prices for agricultural commodities such as soybeans are tougher to predict than diesel prices linked to crude oil because they are affected by factors such as weather and how many crops farmers choose to plant, he said.

Renewable has been reducing its dependence on soybean oil since 2009 after prices of the commodity increased almost fivefold in seven years to 70 cents a pound, according to its filing. About 9 percent of Renewable’s feedstock was soybean oil in 2010, compared with 22 percent in 2009, with the remainder comprising inedible animal fat, used cooking oil and inedible corn oil, its filing shows.

Still, “the markets for used cooking oil and inedible corn oil are in their nascent stages,” meaning Renewable can’t make forward contracts for its ingredients at fixed prices, the filing shows. Losses from hedging in 2010 were $1.2 million, higher than the $1.1 million loss in 2009.

On-Road Vehicles

Most biodiesel in the U.S. is used as part of a blend with petroleum-based diesel fuel for on-road vehicles, according to the filing. Oil companies must blend 36 billion gallons of biofuel by 2022, including 1 billion gallons a year of biodiesel starting in 2012, according to a U.S. Environmental Protection Agency regulation.

Pilot Travel Centers LLC, the operator of highway truck stops, is Renewable’s biggest customer, accounting for 29 percent of revenue in 2010, according to the filing.

The shares, which are scheduled to price today and begin trading tomorrow, will list on the Nasdaq Stock Market under the symbol REGI. UBS AG and Piper Jaffray Cos. are leading the offering. Alicia Clancy, a spokeswoman for Renewable, declined to comment.

Kior, Gevo Inc. and Amyris Inc., all backed by billionaire Vinod Khosla, are developing so-called advanced biofuels, including hydrocarbons that can be processed into replacements for gasoline, diesel and jet fuel.

Gevo, which is valued at about 2.6 times sales in the 12 months through Sept. 30, dropped 59 percent in trading through yesterday since its IPO in February 2011. Amyris is down about 33 percent since its debut in September 2010. None of the companies is profitable.

Annual Losses

Renewable Energy’s net income in the first nine months of 2011 was $781,000, following annual net losses from 2008 through 2010 totaling $106.3 million. The price of U.S. biodiesel fell starting in 2008 because of anti-dumping duties imposed by the European Union, the global financial crisis, and a higher cost of soybean oil, according to the filing.

The company itself is offering about 6.9 million shares, and owners including U.S. Renewables Group LLC, Bunge Ltd., ED&F Man Holdings Ltd. and NGP Energy Technology Partners plan to sell about 343,000 shares, according to the filing.

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