Apollo-backed Noranda slashes IPO

Private-equity owned metals producer Noranda Aluminium has slashed its initial public offering by 66% at a time of continued instability for buyout-backed flotations in the equity markets.

The Tennessee-based company, owned by billionaire Leon Black’s Apollo Global Management, will seek to sell 10 million shares at $8 to $9 each in New York, according to a regulatory filing with the Securities and Exchange Commission. The offer is down from the 16.67m shares the company originally sought to sell at $14 to $16 each.

A senior equity capital markets said: “You have to look at it in two ways – how IPOs are being priced and how they are performing. Some of the deals that get priced well below the range actually perform well.”

Noranda’s shares were trading at around $8.35 at 17:30 BST. Bookrunners are Bank of America Merrill Lynch, Morgan Stanley, Credit Suisse, Goldman Sachs and UBS.

Due to market fluctuations, the banker said, “Investors are saying they will price in the risk involved in an IPO and therefore want to buy much cheaper than before … It’s a warning signal that people need to be very realistic about price because volatility in markets has increased.”

At the start of this year, a number of private equity firms hoped to capitalise on a period of stability in capital markets with more than 20 planned flotations. But this burst of optimism has wavered as global markets and investor confidence continue to fluctuate.

In February, Blackstone Group shelved two planned IPOs – a $1.8bn (€1.4bn) flotation of US travel group Travelport and a ?2bn (€2.2bn) offering by UK leisure group Merlin Entertainments. Around the same time, Apax Partners and Permira postponed a ?650m IPO of UK retailer New Look.

Fund managers also remain wary of private equity firms. A source at a large international bank said: “The buyside are being a little more cautious and looking at valuations. Their antennae are up when they see financially-sponsored IPOs.”

This year 57 IPOs have either been withdrawn or cancelled, according to data provider Dealogic. But the global volume of IPOs so far this year stands at 441 deals worth $81.6bn - almost five times as many as in the same period in 2009.

Success stories include Providence Equity Partners which raised $901m through a flotation of German media group Kabel Deutschland in Europe’s biggest private equity-backed IPO since May 2008. Other firms to follow in their footsteps include Alpha Group which in March raised $193m by listing fashion label Tom Tailor.