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Will Petroalgae's public issue takeoff !!? 20

Petroalgae by no means the market leader, files for IPO at a time when the market is not upbeat.

Not only is Petroalgae not the market leader, it is also not market ready.

In my opinion the $ 200 m offering will not be a great success and will spoil the chances for other companies with reasonably advanced technologies like, Solazyme, Saphire, Solix, Algenol etc

PetroAlgae Inc. (OTCBB: PALG) announced that it has filed a registration statement with SEC relating to its public offering of its common stock.

The market for green companies is pretty weak at present.
Is this the right time ?
More importantly is this the right offering ?

Petroalgae has been making announcements pretty regularly in the recent past. It announced signing up an understanding with a Chile based company recently.
Before that it signed up with a South Korean company.

It has an understanding or arrangement with one of India's largest company called Indian oil to produce algae for oil.

I have not seen any progress in any of these agreements.

Petroalgae has a MOU with a global giant called Fosterwheeler for engineering. That was made a couple of years ago. But that doesnt say much about the issue.

Such a company going for an IPO without a proven model is not good for the industry. This is not just what I feel. Many analysts too feel the same.
Let us have your views too.
Thu August 12 2010 10:35:14 PM by Shankar petroalgae  |  public issue 2341 views

Comments - 20

  • Krupali wrote:
    Thu August 12 2010 10:41:14 PM

    Well said. This is not the company that i was expecting to deliver oil. NO chance.
    There is no mention of any progress made between IOC and Petroalgae. Not in their websites. I dont think I have read any report about the progress made by them,here in India.

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  • Richard wrote:
    Thu August 12 2010 10:55:02 PM

    Is it an Australian company or a Florida based company?

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  • Manohar wrote:
    Thu August 12 2010 11:04:53 PM

    The company is Melbourne, based. It is listed on the OTC Bulletin Board. There is no revenue and that is not a surprise.

    But so far no company has been able to produce algae or oil from algae at large scale or cost-effectively. Much of the cost is associated with processing algae by removing the water and extracting oil.

    PetroAlgae's strategy is to license its equipment to other companies.

    The company has developed modular open-air ponds to grow algae. Conditions in these bioreactors are monitored for light and algae density and are managed by the company's software, according to the prospectus.

    This is Petroalgae's product. Not oil from algae.

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  • Shankar wrote:
    Thu August 12 2010 11:17:21 PM

    Goldman, Sachs & Co, UBS Investment Bank, and Citigroup Global Markets are the lead underwriters for the IPO. All big names associated with an issue rated as weak by many analysts !!?

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  • Natalia wrote:
    Thu August 12 2010 11:22:17 PM

    The company is based in Florida and melbourne.
    The website doesnt evince enough confidence.
    I would like to see the issue document. For how many dollars is the issuse. How many shares. What are they going to do with the money IF raised ?

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  • Thu August 12 2010 11:48:27 PM

    Yes. I agree with you. This issue though underwritten by big bankers, may not be a great success. It has the potential to hurt the prospects of other leading companies like Solazyme, Origin Oil, etc.,
    Their business model is Petroalgae doesnt want to grow algae and extract oil . They want to license their technology to Oil companies. Sounds great.
    But have they sold it to anyone yet ?

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  • Luis wrote:
    Thu August 12 2010 11:56:15 PM

    PetroAlgae also has a bizarre company structure.

    It was set up as a holding company, and the company?s subsidiary PA LLC, is the operating company.

    PetroTech is another holding company controlled by PetroAlgae?s principal stockholder, which assumed the debt and equity from PA, and which previously went public on the OTC by buying a shell company and then renaming itself PetroAlgae.

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  • Shankar wrote:
    Thu August 12 2010 11:56:47 PM

    At what price in OTC ?

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  • Georgeonik wrote:
    Fri August 13 2010 01:44:26 AM

    Each IPO must stand on it's own merit. This sounds like a shaky proposition and investors will treat it as such. $200 million sounds like a lot of money but it isn't much in the arena of global fuels. Investors will vote with their money; when the plan makes sense and can demonstrate a good chance of success they will invest.

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  • Isabella wrote:
    Fri August 13 2010 04:17:59 AM

    The company noted in the prospectus that "a customer licensee could generate revenue of approximately $350 million annually per standard license unit and earn a pre-tax unlevered internal rate of return of approximately 30%, based on certain assumptions? " Remember, this is "could" rather than "has." The company has no significant history of revenues, operating or net income, cash flows or the other financial performance metrics.

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  • Georgeonik wrote:
    Fri August 13 2010 05:33:10 AM

    Anyone promising a 30% return is probably a herion dealer, or an arms trader! Your observation of the important facts of this deal is a good one.

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  • Eugenia wrote:
    Fri August 13 2010 06:22:26 AM

    Wonder why such big financial companies back such projects ?

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  • Natalia wrote:
    Fri August 13 2010 02:12:19 PM

    The $ 200 m issue is for repaying the debt.
    No committed order. No revenue.
    No chance.

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  • Arden wrote:
    Sat August 14 2010 10:43:11 AM

    It wont be lapped up by public. the underwriters are big names. so the issue wont fail.

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  • Emily wrote:
    Sun August 15 2010 12:09:28 AM

    Some more info abou the issue:

    PetroAlgae licenses light and environment management systems, which it claims allow its customers to ?grow aquatic microorganisms at a rate that consistently exceeds four times the natural growth rates?.

    The Melbourne, Florida-based firm says the technology could be used for commercial-scale production of a renewable fuel functionally compatible with the petroleum-based fuels they would replace

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  • Richard wrote:
    Tue August 17 2010 03:56:24 AM

    As per the S1 filed by Petroalgae, they have a unique technology, to produce biomass from various microorganisms.

    They then covert the biomass into biocrude and protein.

    Their "capital light" business model involves licensing their technology, and receiving a licensing fee the first three years, plus a royalty stream thereafter.

    Petroalgae plans to license their biocrude production technology to oil refineries for the manufacturing of delayed coker feedstock.

    Oil refineries can produce products that meet the current specifications of the transportation fuels market by using biocrude as coker feed.

    According to Petroalgae's S-1, oil refineries are currently experiencing a shortage of coker feed, equal to 25% of the total capacity. But the S-1 does not reference the source for this data, and, according to the EIA, cokers have historically run at full capacity.

    The recent reductions in production are the result of poor refining margins, not a shortage of coker feed.

    Regardless of the above doubt, the main economic driver is the value of the biocrude produced with Petroalgae?s technology.

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  • Shankar wrote:
    Wed August 18 2010 02:17:08 AM

    The following are additional facts gleaned from various sources.

    PetroAlgae, Inc. has a market cap of $2.14 billion.
    No revenue.

    Total assets of $4.65 million, total liabilities of $50 million, $190,000 in cash, no revenue, and a net operating loss of $7.2 million.
    operating losses of $67 million

    The Company is 94 percent owned by Cayman Island-based affiliates of New York firms Laurus Capital Management and Valens Capital Management.

    The company says Goldman, Sachs & Co., UBS Investment Bank, and Citi, are acting as joint book-running managers, and Baird, Cowen and Company and Piper Jaffray are acting as co-managers for the proposed offering.

    As per PetroAlgae, their proprietary technology, consisting of light and environmental management systems, allows its licensees to grow aquatic microorganisms at a rate that consistently exceeds four times the natural growth rates.

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  • Veronica wrote:
    Wed August 18 2010 06:31:41 AM

    Thanks to Shankar and others that this club is turning out to be a good site for investment purposes.
    This blog on Petroalgae's public issue seems to be complete with views from many and pretty useful.

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  • Shankar wrote:
    Thu September 02 2010 09:03:10 PM

    Some more write up about Petroalgae issue
    Patrick Peterson in Florida Today.
    My opinion still remains " risky"

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  • Shankar wrote:
    Sat September 25 2010 02:26:51 PM

    The Real Reason For The PetroAlgae IPO

    Its finally out. I have been calling this issue as risky from the beginning.
    Now read this blog BY Nathan Vardi

    But what still surprises me is the Goldman Sachs connection.
    Read on

    For the last two years New York hedge fund firm Laurus Capital Management has tried to find a way to offload its assets, which three years ago it claimed were worth $1.8 billion, and realize gains. Now brothers Eugene and David Grin, who have run Laurus since 2001, are getting help from Goldman Sachs in their attempt to sell their most important asset to investors they don?t actually control.

    The proposed PetroAlgae initial public offering is crucial for the Grins.

    It's by far their most important asset. As of December 2008, the Grins? original fund, Laurus Master Fund, was carrying its stake in PetroAlgae at $352 million, or 54% of its net assets. The cost basis for that stake was listed at $28.7 million.

    The Grins' Valens Offshore Fund had at the same time booked the cost of its PetroAlgae stake at $23.4 million and was carrying it on its books at $90 million, or 17.9% of its net assets. The closed-end fund the Grins manage, PSource Structued Debt, recently had 60% of its portfolio tied up in PetroAlgae, helping PSource report a 22% total performance return in 2009.

    The Grins have been able to value PetroAlgae highly because its shares have traded for as much as $40 on the Over-The- Counter Bulletin Board, giving the company a $4 billion market capitalization at times. The trading volume has always been miniscule since only a tiny number of PetroAlgae's shares float freely; the vast majority of shares are owned by funds controlled by Laurus.

    Laurus has said its valuations are reviewed by outsiders and that PetroAlgae is carried "at a very significant discount to market value." It did not respond to requests for comment on the PetroAlgae IPO.

    This game is about to come to an end. PetroAlgae, which aims to harvest oil from algae, has lost $58 million in the past three years. It claims to be licensing and deploying the leading biomass production platform using technology consisting of light and environmental management systems. But the company's independent auditor has issued an opinion indicating "substantial doubt" PetroAlgae can continue as a going concern. As of June 30, PetroAlgae was running an accumulated deficit of $73.8 million and had $1.2 million of cash.

    In other words, the company needs cash to keep running and Laurus doesn't appear to have much anymore. Laurus and its affiliates have had to lend PetroAlgae another $2.2 million in the last few weeks to help the company fund its operations. The $200 million that PetroAlgae hopes to raise in an IPO will be used to pay back loans made by Laurus and its affiliates, and to fund the company's operations.

    The Laurus Master Fund is currently in liquidation in the Cayman Islands.

    The Grins built Laurus into the biggest hedge fund specializing in PIPEs, or private investments in public equities. In these deals Laurus would inject cash into thinly-traded penny stocks in return for notes and warrants for discounted shares. Many of those companies did not do so well and their securities are often illiquid.

    As I reported last year, the way the Laurus Master Fund cashed out of some of these positions was by selling them to related parties the Grins control or have a hand in. They include PSource and the Valens group of hedge funds, which the Grins set up three years ago.

    In 2008 Laurus Master received $492 million from PSource and Valens for a basket of securities that had a cost basis of $433 million, many illiquid, according to its audited financial statements. Laurus? lawyer said last year that "there was nothing improper about these transactions, which were fully and transparently disclosed to investors and rigorously audited." In 2008, Laurus Master Fund lost 22% according to an email sent to investors, but it still reported an average annual return since 2001 of 12.2%.

    On balance, it seems like the money is finally running dry and the Grins must find a way to sell to actual arms-length outsiders.

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