Investors Enthusiastic For Ethanol

VeraSun shares soar by 30 percent. Company is large producer of ethanol.

By Anuj Gangahar in New York
Published Wednesday, June 14, 2006 Financial Times

Investor enthusiasm for ethanol as an alternative fuel reached a new peak on Wednesday when shares in VeraSun Energy Corporation, the second-largest US ethanol producer, soared by more than 30 per cent on their listing in New York.

Buoyed by VeraSun’s strong debut, shares in Archer Daniels Midland, the largest US producer, ended the day 1.5 per cent higher at $38.77. ADM shares have risen more than 85 per cent in the past year.

VeraSun highlighted the growing interest in ethanol, as oil prices soar and many investors bet on growing demand for alternatives to oil and fuel additives.

Ethanol emits fewer pollutants than petrol and as a result would also stand to benefit from any clampdown on fuel emissions by environmental regulators.

Shares in VeraSun, which raised $419.8m in an initial public offering, closed at $30, rising 30.4 per cent above the offer price, on the New York Stock Exchange.

The company and stockholders had sold 18.25m shares at $23 each through the offer, according to the company. This exceeded the $21-$22 range forecast in an earlier regulatory filing.

Other companies with ethanol-related businesses benefited from VeraSun’s strong performance. Shares of Pacific Ethanol, a California-based ethanol producer and distributor, ended the session up 8 per cent at $21.75.

Ethanol producers with diversified operations rose more modestly than pure-play ethanol producers. MGP Ingredients, which makes ethanol plus a variety of other ingredients and distillery products, rose 2.1 per cent to end the day at $22.20.

Ken Tower, chief market strategist at CyberTrader, said the popularity of the VeraSun offering demonstrated underlying long-term confidence in the market, despite the recent sell-off.

“For people to pile into a new offering indicates that longer term sentiment hasn’t really reached pessimism,” he said. “Once sentiment gets bearish, people aren’t interested, even if you’re offering $100 bills for $10.”

The Chicago Board of Trade recently launched an ethanol futures contract giving investors another means of trading on movements in ethanol prices.

There are 101 US ethanol plants with capacity to produce almost 4.8bn gallons a year, according to the Renewable Fuels Association, a lobbying group based in Washington.

An additional 32 distilleries and six expansions are under construction.

President George W. Bush has recently called for a new effort to develop fuel sources such as ethanol.

Additional reporting by John O’Doherty

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