Dubai’s Shelf Drilling Cancels London IPO

Dubai-based oil rig supplier Shelf Drilling cancelled its London initial public offer of shares on Wednesday in an unsurprising move given the lack of any messaging on subscription levels or price guidance during bookbuilding.

“This decision has been reached due to challenging public market conditions despite a positive response from prospective investors to the company, its strategy and operations,” the company said in a regulatory statement.

That does not entirely tally with recent issuance after more than $8.35 billion of $50 million-plus European IPOs priced last week, comprising 12 listings, including six priced by Shelf Drilling’s joint global co-ordinators Goldman Sachs and Morgan Stanley.

Bankers have warned in the past fortnight that the flow of issuance and patchy aftermarkets have led to investors becoming increasingly picky on IPOs and pricing. Certainly there is no belief that now is a difficult time to sell a new issue.

Shelf’s lead banks are running the Madrid IPO of Spanish logistics group Logista and the London listing of food concessions business SSP, which both opened books on Friday. In addition, Morgan Stanley is a global co-ordinator on ING’s insurance arm NN Group, which priced on Wednesday, and Goldman Sachs is a global co-ordinator on the Milan IPO of drug maker Rottapharm, which began bookbuilding on Wednesday.

One banker working on Shelf Drilling put part of the blame on weakness on the Dubai exchange, with the benchmark DFM General Index having lost almost a third of its value from its May peak. Yet this is largely driven by difficulties at construction group Arabtec and the collapse in its share price.

“What happened in Dubai was unfortunate,” said the banker. “It’s a bad time to be in that market, especially when the rest of the world is so stable, so that didn’t help.”

However, a banker who covers the Gulf region countered that “it is true that local markets are volatile, but that shouldn’t really affect a London IPO. Shelf is a very good asset.”

For example, Gulf Marine Services, a peer for Shelf Drilling, floated in London in March and has been untouched by the local market difficulties.

A potential concern for the market is another banker’s claim that price was not the issue. “Price was not the fix on this as investors told us that a valuation of four times P/E and six times EBITDA made sense,” he said.

There was apparently no desire from the company to price below guidance.

Price guidance on the deal had been set at 270-370 pence, with the company targeting $250 million in proceeds, along with selling from owners Castle Harlan, CHAMP, Lime Rime and some members of the management team and non-executive directors. The overall deal size had been expected to be around $500 million.

Goldman Sachs and Morgan Stanley were joint global co-ordinators and joint bookrunners with HSBC and RBC. Tudor, Pickering & Holt and Liberum were co-lead managers.