Imperium Renewables announced Thursday that it is delaying its plans for an initial public offering, citing unfavorable market conditions.
The company originally filed for a $345 million IPO in May, after raising $214 million in February (see Imperium Raises $214M). But analysts, including DTN Research biofuels analyst Rick Kment, speculated the IPO would be delayed after Imperium CEO Martin Tobias stepped down last month (see Imperium CEO Leaves Amid Biofuel Profit Pressures).
The company hasn't decided on a new timeframe for the IPO or announced which market conditions it's waiting for, according to company spokesman John Williams.
"Obviously, the IPO was a future source of potential cash, but they are currently operating the business from cash flow from the Grays Harbor plant [in Washington], which is operating at full capacity -- 100 million gallons per year -- and is very happy with the customer demand," he said. "The IPO money was not the only source of cash."
Imperium's IPO delay is another illustration of the troubled times for biofuels.
"Imperium's one of the best-positioned companies in this industry, so deciding against the IPO tells you about the status of the market," said Will Thurmond, president of the Emerging Markets Online research firm. "This is just the first of a number of stories [we'll] be seeing about these difficulties."
Biofuel companies have seen their margins squeezed in the past few months as prices for the crops used to make the fuels have increased while biofuel prices have gone down (see Ethanol Margins Suffer and Ethanol's Tough Times Continue). A number of biofuel companies have canceled proposed plants (see Ethanol Margins Suffer, Biofuels Get Funding as an Ethanol Plant Gets Canceled, E3 Plant Craps Out, Another Ethanol Plant Gets Canceled and Biofuel Forecast Buoys a Bit).
The announcement came only a day after oil prices hit $100 per barrel for the first time. U.S. crude oil hit a peak of $100.09 per barrel Thursday before sinking again.
Some biofuel stocks saw a boost from those high prices, including Gushan Environmental Energy (NYSE: GU), which grew 7.5 percent Wednesday and then 14.4 percent Thursday to close at $11.50 per share. Gushan had its IPO in December.
But Imperium apparently didn't think the boost was enough. After all, prices for feedstocks such as soy and palm oil rose alongside those for petroleum oil.
Soybean futures prices set a new record Thursday, trading at $12.93 per bushel for delivery in July. The previous all-time high of $12.90 per bushel was set in 1973.
Kment said the delayed IPO could indicate that the era of what he calls the "golden egg IPO" is over for biofuels, at least for now. With quick profits drying up, companies will need to turn to plans that will yield more consistent profits over the longer term -- which are less attractive to venture funding and IPOs, he said.
"Right now, [Imperium is] really looking at strategically trying to create more net profits and focus on the bottom line," Kment said. "They're really looking to tread water a little bit until things become a little more profitable, especially with the soybean and soy oil markets moving higher so rapidly."
Thurmond added that Imperium's decision is a sign of the "transitional year" he's forecasting for biofuels.
"The No. 1 conclusion I'm coming to is there is so much more capacity out there than there is feedstock that's available for it," he said. "There's too many producers chasing a small amount of oil, and that's led to incredible price inflation. … Producers can't find enough feedstock [at affordable prices] to run plants at a profit."
Thurmond said U.S. biodiesel capacity of existing plants grew from 585 million gallons in 2006 to 1.85 billion gallons last year while soy oil grew from 27 cents per pound in August 2006 to 48 cents per pound last month.
On average, plants operated at 50 percent of their capacity last year and are down to running at only 23 percent of their capacity this year, he said.
"Most plants are going to be running at a reduced capacity, but the ones that are able to stay in business running at that capacity are going to need to find new feedstocks -- invest in algae and jatropha over the long term," he said.
Thurmond expects Imperium to operate at a reduced capacity and spend its time and money researching next-generation feedstocks that will enable the company to make a profit in the future.
"It's going to be a rebuilding year [for Imperium]," he said. "Building out the plant at today's cost should only cost them $60 [million] or $70 million total, so they probably still have a lot of money leftover to spend on R&D. Because this year's going to be a tough one for biodiesel businesses and they are not going to be able to operate profitably until those feedstocks show up."
Calling off the IPO makes sense, he said, because public companies are accountable to their shareholders.
"They've already got pressure from the venture capitalists, but if Imperium went public, the pressure on the CEO and management would be tremendous," he said. "It's a risky, volatile situation and not the right time for an IPO. With Imperium, you just have to think that they're in it for the long haul and when the market changes for everybody, it's going to change for them, too. The question is how long people are going to be willing to wait for that."