Chip Maker's Stock Sale Ends German IPO Drought

X-Fab Semiconductor Foundries AG, which manufactures made-to-order semiconductor wafers, will offer up to 13.23 million shares, priced at between €10 and €14 ($12 and $17) apiece, to start trading in Frankfurt on March 19.

Order taking began on March 4 and will continue through March 16.

The company is taking advantage of a 30 percent gain in Germany's blue-chip DAX index since January of last year and is the first of at least nine firms planning to raise money on the open market. Analysts say it is the start of the end of a three-year slump in IPO offerings that came about as a result of weak stock markets, falling earnings and accounting scandals.

X-Fab's parent company, the Belgian holding company Elex NV, will offer between 5 and 7 million of its own X-Fab shares plus another 4.5 million new shares and an over-allotment option of an additional 1.7 million if demand is high.

A successful IPO could give the company, which was once part of an East German semiconductor collective, a market valuation of up to €428.8 million ($527.6 million)

Analysts are wary

That figure is considered too high by several analysts and many have been publicly cautioning against the IPO.

"We do not recommend this one," Reinhild Keitel, spokeswoman with a German organization of small shareholders, told Dow Jones. "It looks overpriced, given the information available to us."

Jochen Mathée, a fund manager with Invesco, told German public television that the price was "ambitious," saying a valuation of around €250 million was more appropriate.

Others pointed out that X-Fab has never been profitable and has posted losses for the last three years. Moreover, the company is saddled with up to €25 million in debt. The company also raised suspicions when the lead bank managing the sale, ING, said that "technical difficulties" prevented it from releasing a sales prospectus, which is required reading for investors who want a realistic overview of a company's health.

Germany's largest association representing private investors, DSW, has discouraged its members from buying the shares, saying the IPO was unattractive all in all, partly because some 60 percent of the proceeds would likely flow to the parent company, Elex, and not back into X-Fab.

"This issue reminds me of the negative things that led to the devaluation of the Neuer Markt," Jürgen Kurz, a spokesman for DSW, told Dow Jones, referring to the now defunct German high-tech index which closed in 2003 after investors shied away en masse from the technology sector.

Start of a trend

Despite their misgivings, analysts say a successful X-Fab offering would be a positive development, since Germany needs a string of success stories to lure wary retail investors back to the market.

Already cautious investors, Germans started retreating from the market after the bubble burst in 2000. The number of shareholders declined to 7.8 percent of the population in 2003, from a high of 9.7 percent three years earlier.

X-Fab's director, Hans-Jürgen Straub, is undeterred by the pre-offer criticism. "Demand is high," he said in an interview.

It does appear the IPO is springing to life after a long slumber all across Europe. Besides X-Fab, British biotech firm Ark Therapeutics and Belgian telecoms firm Belgacom have provided details of their IPO plans as economic conditions improve and stock markets rebound.

Earlier this week, financial industry analyst Dealogic reported a surge in the value of IPS in Europe to €599 million ($740 million) in the first two months of this year, a significant increase from €19 million ($26 million) from a year before.

"The market is active at the moment, driven by U.S. growth, better markets and as many companies report better than expected results," James Renwick of investment bank UBS told Reuters.