NGI The Weekly Gas Market Report
Looking to take a second bite of the apple, Nymex Holdings Inc., the parent company of the New York Mercantile Exchange Inc., announced last week the pricing of its secondary offering of seven million shares of its common stock at $136.50 per share.
The company also reported last week that it is tapping into the renewable energy business with the introduction of alternative energy index futures and options contracts, which it is offering through an agreement with Ardour Global Indexes LLC, a developer of benchmark indexes for the global alternative energy industry.
Adding to the busy week, Nymex closed on the previously announced purchase of a 10% equity stake in the Montreal Exchange Inc. (MX), Canada’s financial derivatives exchange. As part of the deal, Nymex and MX also announced the creation of the Canadian Resources Exchange Inc. (Carex), their new joint business venture dedicated to the Canadian energy marketplace.
Nymex, which will not receive any of the proceeds from the secondary offering, said the shares are being offered by Nymex stockholders, including major banks, who elected to sell shares. In addition, the underwriters have an option to purchase up to an additional 1.05 million shares to cover possible over-allotments. The offering is expected to close on Tuesday, March 27, subject to customary closing conditions.
The move by Nymex follows the company’s successful initial public offering (IPO) in November when the company and its private stockholders sold a combined 6.5 million shares, which had been expected to debut at between $54 and $57 per share, but achieved a $59 price (see NGI, Nov. 13, 2006). In its first day as a publicly traded company the shares soared to more than double its IPO price, opening up 103% higher at $120 per share before climbing to a high of $152 on the New York Stock Exchange. Nymex finished its first day as a publicly traded company with a share price of $132.99 (see NGI, Nov. 20, 2006).
Nymex said that J.P. Morgan Securities Inc., Banc of America Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Inc. are acting as joint book-running managers, and Bear Stearns & Co. Inc., Citigroup Global Markets Inc., Deutsche Bank Securities Inc., Jefferies & Company Inc., Lehman Brothers Inc., Morgan Stanley & Co. Inc., Fox-Pitt, Kelton Inc., Keefe, Bruyette & Woods Inc. and Sandler O’Neill & Partners LP are serving as co-managers for the offering.
Some of those same firms are among those selling off a portion of their interest. BNP Paribas is the leading seller, offering 270,000 shares while retaining 540,000. Others include: Merrill Lynch selling 240,000 and retaining 300,000; Madison Tyler Trading LLC selling 144,000, retaining 240,000; Citigroup selling 131,000, retaining 352,000; Calyon Financial selling 125,000, retaining 637,000; DRW Commodities selling 120,000, retaining 150,000; Ronin Capital LLC selling 120,000, retaining 170,000; JP Morgan selling 60,000, retaining 300,000.
Despite selling off nearly 900,000 shares in the current offering, major stockholder General Atlantic LLC will retain more than seven million shares for a 7.89% interest in the company.
As for the renewable energy contracts, Nymex said the time was right to expand its product offering. “The introduction of alternative energy indexes is an exciting initiative for Nymex,” said Richard Schaeffer, Nymex’s chairman. “We have seen an interest in what we believe will be an expanding segment of the world’s energy markets, and we strive to introduce innovative new products to the energy arena.” Nymex plans to offer these products on the CME Globex electronic trading platform, where they will be available to investors, risk managers and traders around the world.
Nymex said the Ardour Global Alternative Energy Indexes (AGI) were designed to serve as fair, impartial and transparent measures of the performance of the alternative energy industry. So far this year, the AGI has risen more than 5%, reflecting surging interest in the sector caused by high energy prices, as well as security and environmental concerns, Nymex said. The capitalization-weighted, float-adjusted family of indexes incorporates companies engaged in five primary alternative energy sectors: alternative energy resources (including wind, solar, ethanol biomass and others), distributed generation, environmental controls, energy efficiency and enabling technologies.
“The transformation of the world’s energy supply from fossil fuels to alternatives and renewables could become the dominant economic driver of the twenty-first century,” said Joseph LaCorte, an AGI Index committee member. “The AGI is the bellwether for that transformation.”
The AGI has also been licensed to several major providers of index products, including the Van Kampen division of Morgan Stanley, UBS and Van Eck Global.
Nymex’s 10% acquisition of MX was first announced last month (see NGI, Feb. 15). Under the agreement, Nymex said it purchased the equity stake for an aggregate price of approximately $78 million, and the two exchanges jointly funded Carex with approximately $3.5 million.
“We are gratified to move our partnership with the Montreal Exchange to the next step with our equity purchase and the establishment of Carex,” said Schaeffer.
MX and Nymex said that the joint venture has a two-phase business plan. First, the partners intend to offer clearing services to participants in over-the-counter (OTC) energy markets. The focus will be on both financial and physical contracts based primarily on Canadian energy commodities. In the second phase, the joint venture intends to develop and market on-exchange futures and options contracts for the same underlying commodities. By employing the services of the two partners, the joint venture hopes to benefit from economies of scale and lower operational costs.
MX offers trading in Canadian interest rate, index and equity derivatives. Clearing, settlement and risk management services are provided by an AA-rated clearinghouse, the Canadian Derivatives Clearing Corp., which is owned by MX. The exchange is also a significant owner and the technical operator of the Boston Options Exchange, a U.S. automated equity options market.
In the coming months, Carex, a Canadian corporation with its principal place of business in Calgary, AB, expects to offer trading and clearing services of OTC and on-exchange futures and options contracts for physical and financial settlement relating to Canadian-based energy (including natural gas, crude oil and electricity), metals and soft commodities.
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