Australian initial public offerings may lose money for a second straight year in 2008 as investors retreat from unprofitable commodity explorers and financial companies infected by losses from subprime mortgages.

Bloomberg’s Australian IPO index of 243 companies that went public in the past year fell 2.2 percent in 2007 while the S&P/ASX 200 Index rose 17 percent. Shares on the IPO measure are more than twice as expensive as those on the national benchmark after a six- year rally lured the largest number of new listings ever.

Rams Home Loans Group Ltd., a Sydney-based mortgage lender, and Natural Fuel Ltd., a Perth-based maker of diesel from vegetable oils and animal fats, fell more than 85 percent since they went public in the past 12 months. Six of the 10 worst performers in the IPO index are unprofitable mineral exploration companies. The slump is a reversal from the past six years, when the IPO index soared 426 percent compared with 77 percent for the S&P/ASX 200.

“A lot of these IPOs have been cobbled together by promoters to feed demand during the good times and they’re listed at a massive premium,” said Brian Eley, who manages $787 million at Eley Griffiths Group in Sydney. “Some of these new floats are like drinking warm champagne. When you first open the bottle it’s all bubbles but then they become undrinkable.”

The IPO index is trailing the benchmark for the first time since Bloomberg started tracking the data in 2000. Shares on the IPO index trade at an average 39 times earnings, compared with 16 times for the S&P/ASX 200.

`No Worries!’

Eley, who avoided Rams, holds newly listed stocks in mining services. Among them is Nomad Building Solutions Ltd., a provider of trailer housing for workers at natural resources companies that has surged 192 percent since going public in October 2006.

Rams, which marketed home loans with the slogan “No deposit? No worries!” was forced to sell its brand and branch network to Westpac Banking Corp. in November after failing to refinance A$6.1 billion ($5.3 billion) of short-term loans. The lender, which sold shares at A$2.50 each in July, now trades at 33 cents.

Platinum Asset Management Ltd., Australia’s biggest hedge fund, was another victim. The firm, whose customers include George Soros, surged 76 percent on its May 23 debut, making founder Kerr Neilson a billionaire. Platinum Asset now trades at A$4.98, below its A$5 IPO price, after forecasting 2008 profit will remain flat because of turmoil in financial markets.

`Uranium Bubble’

The head of Natural Fuel’s unit in Singapore quit last month as rising raw material costs delayed production. Natural Fuel trades at 18 cents a share after going public at A$1.50 last December.

Territory Uranium Ltd., based in Perth, has been another casualty of the IPO selloff. The shares tripled from their initial price of 20 Australian cents in three days after the April 26 listing. They now trade at 19 cents.

“We suffered a bit from the uranium bubble,” Ian Bamborough, who’s been managing director of Territory Uranium since Sept. 21, said in an interview from Darwin, the capital of Australia’s Northern Territory. “It’s early days in terms of the stock. It could take a few years to bring anything to resource.”

Over the past six months, six of the 10 worst performing IPOs have been uranium explorers that have never earned a dollar mining the ore. Western Uranium Ltd., based in Perth, has lost the most, slumping 69 percent. Elissa Samuel, the company’s investor relations manager, declined to comment on the performance.

Uranium spot prices rose 91 percent this year through June 8, then fell 33 percent and now trade at $93 a pound, according to Metals Bulletin.

`Bad Smell’

Some of these IPOs were “manufactured to feed the market during the uranium hype,” said Eley Griffiths’ Eley. “They’ve never found anything and don’t have a business model and now they’re hanging around like a bad smell.”

More than 50 IPOs are scheduled this month, according to ASX Ltd., operator of Australia’s stock exchange. There have already been 275 in 2007, the most ever, said Kerrin Oshry, corporate relations adviser at ASX in Sydney.

The failures will force companies to sell less expensive shares if they plan to go public, said Adnan Kucukalic, director of Australian equities research at Credit Suisse Group in Sydney.

“As the exuberance in the market is tempered a little bit, we’ll probably see some more sensibly priced IPOs,” he said. “If you’re buying things at the top of the market you’re going to get burned.”

Wakeup Call

Stripping out commodity stocks and so-called backdoor listings resulting from mergers, 68 companies came to the market in the 11 months to Nov. 30, according to accounting firm PricewaterhouseCoopers LLP. They were priced at a one-year forecast price-to-earnings ratio of 12.2 times, more than the 11.4 times average for the 71 IPOs last year.

“2007 is likely to be remembered as the year the U.S.-led credit crisis awakened the market from its aggressive pricing of risk,” wrote Greg Keys, PWC’s corporate finance partner.

Angus Gluskie, who helps manage the equivalent of $500 million at White Funds Management in Sydney, expects shares of new companies to continue to underperform. He avoided Rams and in October sold his shares in Boart Longyear Ltd., a mining industry drilling services contractor that gained 29 percent since its debut April 5.

“A lot of floats are purposefully carried out into a bull market when earnings are good, so it’s easy for them to disappoint,” Gluskie said. “This is the worst time to be coming onto the market as people are becoming much more cautious and are only going to be become less likely to take new, untried investments on board.”

(Bloomberg)