AEI IPO offers energy, emerging markets exposure

A former Enron entity is going public Thursday. Despite the negative link, AEI presents an opportunity investors may find hard to resist, given its exposure to energy demand in emerging markets and growing interest in the power sector.

The offering comes at a time when the shares of peers such as Duke Energy Co. and AES Corp. have rebounded significantly from year lows, stoking investor enthusiasm.

The operator of power and natural gas infrastructure in developing countries is looking to raise about $860 million in its initial public offering, expected Thursday. AEI is offering 16.7 million shares of common stock. Its largest shareholder - investment manager Ashmore Funds - will sell 33.3 million shares.

"(AEI) is coming out after investors have become aware of this segment and bid these companies up," said Francis Gaskins, president of IPOdesktop.

But Duke and AES - both U.S.-based companies - carry far fewer risks. Cayman Islands-based AEI operates in 19 different countries in Latin America, Europe and Asia. The company is exposed to political, credit and currency conversion risks, along with the risk of some countries nationalizing operations.

Adding to concerns, much of AEI was once an Enron Corp. entity and will continue to be run by former Enron employees. Enron, a once high-flying energy trading company, collapsed in 2001 amid accounting fraud, leaving behind billions in debt and worthless stock.

In 2005, Ashmore created the entity AEIL in the Cayman Islands to act as a holding vehicle for energy-related assets it owned at the time and to act as a platform to acquire Prisma Energy International Inc. (PEI) from Enron.

After the completing the purchase in 2006, AEIL and PEI merged to form Ashmore Energy International, and thereafter AEI. Since January 2007 the company has bought new or additional interests in 19 businesses.

James Hughes, AEI's CEO, previously spent a decade with Enron Corp. before becoming CEO of PEI in 2002. AEI's chairman Ronald Haddock used to serve on Enron's board. Four executive vice presidents at AEI used to work for Enron.

Enron history is "a negative, but it did happen quite a while ago," Gaskins said.

Despite the risks, Gaskins expects investors to latch onto the emerging markets opportunity. According to the Energy Information Administration's forecast, natural gas consumption is expected to grow faster in developing countries.

"I think investors want to participate in the market growth of power infrastructure in third world countries and this is one vehicle to do it - it may be the only vehicle," Gaskins said, noting that ultimately, AEI has what investors are thirsty for - assets, revenue and earnings.

For the first six months of the year, the company's net income jumped 58 percent to $168 million from the year-ago period, driven by lower natural gas prices. But revenue for the period fell 20 percent to $3.7 billion, mostly hurt by currency devaluations in some countries.

AEI said it expects its IPO shares to price between $14 and $16 per share. Underwriters have the option to purchase up to an additional $7.5 million shares.

The company estimates net proceeds to the company of about $233 million, which it plans to use for corporate purposes, including paying off debt. The total raised in the deal could reach $862.5 million.

The company expects to list its stock on the New York Stock Exchange under the symbol "AEI."

Two other companies debuted shares on Wednesday. Supplement retailer Vitamin Shoppe Inc. rose $1.25, or 7 percent, to $18.25 in afternoon trading after pricing at $17, while nursing, rehabilitative therapies and home care services company Addus Homecare Corp. shares fell $1.37, or 14 percent, to $8.63 after pricing at $10.