# Global Ethanol Holdings IPO



## Young Gun (22 July 2006)

I was reading the paper this morning and read about Global Ethanol Holdings, an ethanol production company going for an IPO on the ASX. Apprantely the IPO is only open for instituional investors and quote "sophisticated investors". I was wondering what your thoughts were on this company and if you will be watching this as a possible buy. I belive in the future ehtanol will become a highly desired replacment for oil. I know alot of sharemarket anaslst (such as phat profits are predicting that the next "generation" will be characterised by energy stocks and oviously oil replacments would be the main driver. The article is below : 



> ETHANOL producer Global Ethanol Holdings plans to list on the stock exchange in a $467.3 million initial public offering.
> 
> Up to 101.4 million shares will be offered at $4.60 to $5.80 each.
> 
> ...


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## Knobby22 (23 July 2006)

I have some rules for IPOs that this breaks:

Never invest in an IPO of a small company in Australia that has the words global, international or world in it.

Secondly, never invest in the flavour of the month IPOs that are designed mainly to make merchant bankers rich.

This one fails both tests and I will not even be looking at the fine print.

Regards

Knob


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## Young Gun (23 July 2006)

> Secondly, never invest in the flavour of the month IPOs that are designed mainly to make merchant bankers rich.
> 
> This one fails both tests and I will not even be looking at the fine print.




Curious to know why you would think this? If they were trying to rip people off as the flavour of the month, why would it only be open to instituional investors? Common sense would indicate retail investors would be more likely to to fall for something like this let alone profesional investors who conduct comphrensive fundamental anaylsis of shares.


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## Knobby22 (23 July 2006)

Sophisticated investors is short hand for clients of the stock brokers.

Look I may be wrong but it really looks like a top of the market IPO.
Maybe I am being too negative but I doubt it.


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## Hopefulone (24 July 2006)

Watching the financial news from America, Ethanol IPOs were the flavour of the month until the last IPO which fell in price after listing.  I think they are trying to capture the flavour of the month.  The problem with the US market is that it has been forced to produce ethanol to meet federal targets for % in gasoline.

To produce ethanol in the US they use grains, particular corn.  And as a result corn prices have gone up considerablly.  The other factor, which i dont understand is that reports indicate that ethanol production in US results in as much energy consumed to produce the same amount.  The only reason why this production is profitable is the subsidies.  Based on US politics, they will maintain the subsidies as long as necessary to support rural america and to maintain a defensive supply and therefore reduced reliance on foreign countries.  But they have a distribution problem as it is not shipped via pipelines but by train and truck

To build a plant is great, but you need the feedstock ie corn.  In the US the farming co-ops have actually been the big developers of ethanol so for the new plant to be successful, it will need a coop to provide a new feedstock supply.  This is a risk.  Unless US keeps increasing the plantings of corn, and subject ot the vagries of the weather ie drought.

I have AAE, and they, while trying ethanol in aust, are building a biodiesel plant and have the feedstock and the distribution network set up.  If you look at their latest report indicate similar huge profits but at a much lower capitalisation rate.  The estimated profit based on capitalisation gives a return of around 3%.  I think there are better opportunities than that even telstra

It bothers me that Australia is not on the list of places to establish a plant.  Why the US?


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