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An LNG tanker can, apparently, turn on a dime. So can an LNG export company — at least if Venture Global is anything to go by. The upstart operator of liquefied natural gas export terminals along the US gulf coast last week priced a highly anticipated initial public offering at an equity value of $68bn, a 40 per cent haircut to the $116bn it had been seeking only a week before.
Slight price reductions during the roadshow period are not fun but frequently happen. This, however, is on another level. The Venture Global about-turn underscores the limits of the Trump US energy bump and of the supposed resurgence in the market for new listings.
In hindsight, at least, it seems clear that Venture Global and its bankers at Goldman Sachs and JPMorgan overestimated the value that investors would attribute to President Donald Trump’s embrace of fossil fuels and deregulation — including the reversal of a Biden administration pause on licences for LNG export facilities.
For an idea of the enthusiasm baked into their assessment, just think that — at its originally-sought valuation — Venture Global would have had an enterprise value of nearly $140bn including debt. That is $1.4bn for each of its 100mn tonnes of future export capacity. For reference, sector leader Cheniere’s $80bn valuation values its 55mn tonnes of capacity at $1.5bn each.
Snag is, Cheniere’s two export terminals are already advanced enough to generate several billion dollars in cash flow, much of which is already flowing in dividends to shareholders. Venture Global is at the capex sinking stage: its $10bn in investment in the first three quarters of 2024 far exceeded its revenue for the same period.
Scale matters, of course, and Venture Global may eventually have an edge over its rival. But uncertainties over interest rates, the future of LNG prices and the risk of cost overruns or technical problems were given remarkably little weighting. And, as with Cheniere whose shares are up nearly 300 per cent in the past five years, valuations are already at lofty levels.
Despite the snafu, Venture Global will be glad it has got its listing away. It needs the cash given its capex demands — and it increased the share size of the offering to mostly compensate for the haircut. For the company, what matters now is hitting its operational targets. Facebook had its own botched IPO but today few can recall the particulars.
Yet the IPO was hardly a success. As well as the initial mispricing, it failed to produce a day-one “pop” in the shares. One of the mysteries of recent years has been the dearth of new listings at a time when equity prices have been elevated. This saga will not help build confidence.
sujeet.indap@ft.com
