Banking & Capital Markets

Do Cry for Me, Says Argentina

Government close to public debt default, bank ratings downgraded, citizens throwing eggs at big buildings. Elsewhere: Busy season for U.S. issuers.
Joseph McCaffertyDecember 10, 2001

Argentina’s cash-starved government is moving quickly to avoid default on $132 billion in public debt, while the country’s financial situation worsened.

Argentine Economy Minister Domingo Cavallo met with officials from the International Monetary Fund to try to secure a new $1.3 billion loan for the country. The IMF has said that it would not make the loan because the deteriorating economic situation was causing the country to miss targets for reducing its deficit. The IMF is looking for Argentina to make as much as $4 billion in budget cuts before it approves the new loan.

Meanwhile, credit agencies downgraded most of Argentina’s 10 largest banks after the government set limits on cash withdrawals during a run on the banks. The banks do not appear to be in danger of collapse, but share prices for the banks fell by as much as 15 percent late last week. Fears of a currency devaluation continued to haunt the banking system. Cavallo insisted that a currency devaluation was not being considered.

Argentineans displayed their anger at the government’s handling of the financial crisis by pelting the Central Bank building in Buenos Aires with eggs and stones. Many people have been trying to change currency into U.S. dollars, and moving funds and opening accounts in other countries.

Economists were not as worried as they have been in the past that the financial crisis could spread to neighboring South American countries. The situation appears to be limited to Argentina, and investors have had plenty of time to react during the year-long crisis.

IPO Market Set to End the Year with a Bang

Underwriters on Wall Street will try to cram 10 offerings into the final week of the IPO year. All together, these deals are expected to raise more than $6 billion. That sum would represent 15 percent of the total amount raised so far this year — if, of course, all the offerings materialize.

On Friday, Internet software company Lawson Software Inc. sold 14 million shares at $14 per. That was the midpoint of an anticipated range of $13 to $15. The company raised $196 million in the IPO. The Lawson offering closed the day up 13 percent, at $15.82. It was only one of two companies to go public last week. The other was Aluminum Corp. of China.

Lawson, a profitable company which provides E-commerce software for the retail, financial services, and health-care industries, was only the 18th tech company to go public this year, according to Dealogic. Surprisingly, tech companies have been the best-performing IPOs this year, with share prices rising by 27 percent on average from their offering price. The three tech companies that have gone public after September have seen their share prices go up an average of 40 percent. Not bad.

The 10 deals scheduled this week could raise a combined $6.2 billion. If the offerings do well, this late flurry of activity pave the way for a robust — and diverse — IPO calendar next year.

“After a difficult year, we are back in a normal IPO market. All the elements are in place now,” Marc Baum, chief executive of IPO.com, told Reuters. “The quality and the breath of the deals is impressive.”

Nevertheless, all eyes will be focused this week on Prudential Financial Inc., the large life insurance company. Managers at Prudential plan to offer 110 million shares at between $25 and $30 per shares. All in, Prudential is looking to raise as much as $3 billion with the offering. It would mark the third-largest IPO of the year, trailing only those of Agere Systems Inc. and Kraft Foods Inc.

Prudential, though, is not the only insurance company slated to go public this week. Converium Holding AG is being spun off by Zurich Financial Services.

Other companies scheduled to launch IPOs this week: Aramark Worldwide Corp., network security specialist Netscreen Technologies Inc., biotech company Northwest Biotherapeutics Inc., and defense contractor United Defense.

United Defense would be the first defense company to go public in five years. Of course, the war in Afghanistan has likely played a major role in the timing of the offering. United Defense management expects to sell its shares for between $18 and $20 apiece, but has not yet disclosed how big the offering will be.

In Brief

Investors’ hunger for junk bonds continued amid signs that the economy might rebound sooner than expected. Junk bond mutual funds took in $280.3 million in new cash last week, according to AMG Data Services Inc., which tracks such funds. It was the eighth straight week of inflows for junk bonds. The bonds performed well in November and December, and some investors are starting to look for higher returns.

Managers at Hotel owner Boykin Lodging Co. said the company will suspend its cash dividend in the fourth quarter, partly due to the steep drop in travel and hotel use after September 11. Host Marriott Corp. and Equity Inns made similar moves last week. The temporary dividend suspensions were not unexpected, as hotel operators move to conserve cash during this economic downturn.

Shareholders filed a law suit against Canadian electronics manufacturer SMTC Corp. accusing the company of IPO fraud. The suit alleges that underwriters of SMTC’s IPO received excessive commissions from certain investors in exchange or material portions of the restricted number of shares. It also accuses the underwriters of the stock, which trades on Nasdaq, of offering IPO shares to customers who agreed to purchase additional shares in the aftermarket at predetermined prices.

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