Cummins engine filtration unit IPO to brave debt ceiling jitters

By Echo Wang

May 25 (Reuters) - Cummins Inc is pressing ahead with plans to price the initial public offering (IPO) of its engine filtration division on Thursday, defying the market volatility fueled by concerns over the lack of a deal to raise the U.S. debt ceiling.

The carved-out division, Atmus Filtration Technologies Inc, is seeking to raise about $275 million by signing up investors to the IPO on Thursday evening, before its shares start trading in New York on Friday.

It is a bet that market volatility, which can be detrimental to IPOs because it dents investor confidence in a company's valuation, will not derail the offering. The markets have been on edge over the timing of an eventual deal between the White House and Republicans in Congress to raise the debt ceiling ahead of the June 1 deadline set by the U.S. Treasury.

Despite the elevated volatility, however, the Cboe Volatility Index, known as Wall Street's "fear gauge," remains below 20, the level many bankers say makes it difficult to price IPOs. The VIX has been above 20 most of the time since the first quarter of 2022, as the war in Ukraine and interest rate hikes by central banks fueled market jitters. This created an IPO drought, with only a few stock market hopefuls bucking the trend.

Companies have raised about $2.2 billion in the first quarter this year, compared to more than $42.6 billion during the same period in 2021, according to Dealogic.

The Atmus IPO follows in the steps of Johnson & Johnson's consumer health business Kenvue Inc, which raised $3.8 billion earlier this month in the largest IPO of this year.

Atmus provides filtration products for trucks, off-highway industrial equipment and power generation systems.

Columbus, Indiana-based Cummins will control about 83% of the company's shares after the listing on the New York Stock Exchange.

Goldman Sachs & Co., and JPMorgan Chase & Co., are the lead underwriters for the IPO. (Reporting by Echo Wang in New York; Editing by Paul Simao)