Vonage hit by flight from risk to quality

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The flight away from risk amid volatile global markets was underlined Wednesday as shares in Vonage, the internet telephone service provider, plunged 13 per cent in the company’s first day of trading in New York.

Vonage’s $531m initial public offering was the worst US market debut in more than two years. It followed a sharp correction in US markets this month, with the technology-dominated Nasdaq Composite index falling 7.5 per cent in the past two weeks.

The Vonage float netted a total first-day loss for its investors of $67.5m – making it the fifth-worst market debut in New York in the past quarter century, according to Jay Ritter, finance professor at the University of Florida.

The market’s sharp rebuke for Vonage demonstrated the growing “flight to quality” among global investors, who showed little interest in picking up shares of a company that was still losing money, even though it was operating in a growth sector.

The same trend also forced the postponement of two listings in London. Both CMC Markets, which provides spread-betting and foreign exchange services, and Sigma Capital Investments, the Black Sea property group, said they remained committed to their IPOs, but would wait until the markets were less volatile.

However, the wave of risk aversion did not stop the far larger, and heavily subscribed, flotation on the Hong Kong Stock Exchange of the Bank of China, which raised $9.7bn in the world’s biggest public share offering in six years.

Global investors will now turn to Thursday’s pricing of MasterCard’s offering as a barometer of sentiment, in a deal set to be bigger than Vonage’s. It also emerged yesterday that Fortress Investment Group, a fund manager, was considering a listing.

Selling of Vonage stock was heavy, with more than 26.096m shares traded – almost 50 per cent more than any other stock.

First Trust IPOx, a fund that tracks an index of recently floated US companies, has dropped 10.4 per cent over the past month.

Vonage, based in New Jersey, is competing with a raft of companies rushing to offer web-based telephony services. Technological advances, particularly the internet telephony on which Vonage has built its business, means even more rivals are able to offer basic phone services at low cost or for free.

The debut has followed a tough path. After initially considering a listing, Vonage was encouraged in September to pursue a sale, after Skype was sold to Ebay for $4.1bn. But no buyers emerged at the price it was seeking and the focus returned to a stock market listing. The IPO was underwritten by Citigroup, Deutsche Bank, and UBS.

Additional reporting by James Politi and Aline van Duyn in New York

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