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  1. Dong Energy of Denmark pulls off Europe’s biggest IPO in 2016: Five things to know

Dong Energy of Denmark pulls off Europe’s biggest IPO in 2016: Five things to know

Denmark's Dong Energy, which focuses on wind power generation pulled off Europe's biggest stock market flotation this year.

By: | New Delhi | Published: June 10, 2016 11:59 AM
Denmark, denmark dong energy, wind power generation, Europe IPO, IPO Dong Energy’s Chief Executive Henrik Poulsen said renewable energy like wind will be produced at a lower cost in the future. (Reuters)

Denmark’s Dong Energy, which focuses on wind power generation pulled off Europe’s biggest stock market flotation this year. Its shares jumped 10% on the very first day of trading, bringing its market value to 98 billion kroner ($15 billion), the most of any listed company in the country.

Dong Energy’s Chief Executive Henrik Poulsen said renewable energy like wind will be produced at a lower cost in the future.

Denmark will remain Dong Energy’s biggest owner, with just over 50% stake followed by Goldman Sachs.

Here are five things to know about Dong Energy:

VALUATION

Dong Energy is the world’s biggest developer of offshore wind farms, accounting for more than a quarter of total installed capacity. More than half of Copenhagen-based Dong’s electricity and heat generation comes from renewable sources, including offshore wind power.

The valuation will make Dong the sixth largest company in Denmark, ahead of brewer Carlsberg A/S.

The aim was to reduce the Danish government’s stake in the company from 58.8 percent to 50.1 percent. Goldman Sachs currently holds about 18 percent. The IPO was made with broad support in Parliament.

FOCUS ON RENEWABLE ENERGY

Analysts said the strong debut, coupled with a move by shareholders in E.ON to back the German utility’s retreat from fossil fuel, showed investors were growing in confidence about the future for renewable energy as technologies improve and governments commit to curbing carbon emissions.

“It is our clear impression the green transition has a pretty strong momentum,” DONG Chief Executive Henrik Poulsen told Reuters. “Our vision is that green energy will be cheaper than conventional energy. It can happen within a decade.”

Dong, which has built more than a quarter of the world’s offshore wind farms, sold shares in its initial public offering (IPO) at 235 Danish crowns apiece, in the top half of its original 200-255 crowns guidance range and valuing the business at 98 billion crowns ($15 billion).

RENEWED RISK APPETITE AMONG INVESTORS

Analysts said strong demand could also be a sign of renewed risk appetite among investors as they seek to boost returns amid negative interest rates in much of Europe, including Denmark.

Investor confidence was hit earlier this year by China’s slowing economic growth, with worldwide share issues slumping to a seven-year low in the first quarter. Dong’s flotation raised a gross 17 billion crowns for the Danish state and a consortium of investors led by Goldman Sachs.

The valuation means Goldman has doubled an 8 billion crown investment made just two and a half years ago, fuelling criticism in Denmark that the previous government sold an 18 percent stake to the Goldman consortium too cheaply.

SUBSIDIES

Dong’s listing gives investors the chance to buy into the fast-growing offshore wind sector. The firm has major projects in Britain and Germany, including the 1.2 gigawatt Hornsea 1 which will become the world’s largest offshore wind farm, and recently opened offices in the United States and Taiwan.

However, offshore wind power remains one of the most expensive sources of renewable energy and some analysts are concerned about the sector’s reliance on government subsidies.

Dong derived 62 percent of its revenue on operational offshore wind farms last year from subsidies and other financial support, such as Green Certificates in Britain.

The cost of producing wind power offshore is about twice as expensive as solar energy.

“Solar power is by far the biggest challenge to the wind industry because it’s cheaper, easier to handle, and has lower maintenance costs,” said Peter Garnry, head of equity strategy at Saxo Bank.

“But if they don’t manage to get costs per unit down for offshore wind power, then in the long run this won’t be a very attractive story,” he added.

IMPROVING TECHNOLOGY

Dong did not issue new shares, while the government and Goldman consortium sold a combined 17.4 percent stake. The state will retain a holding of just over 50 percent, while the Goldman group will have a stake of 13.4 percent after the flotation.

Gross proceeds could rise to 19.7 billion crowns if the sellers exercise a so-called overallotment option to offload further stock.

Dong has made a net loss for each of the last four years, mainly due to impairment charges on its oil business, but expects to make a profit this year as its wind power business increases and the technology improves.

Dong said more than 36,000 new investors had been allocated shares in the flotation. Private Danish investors were assigned about 10 percent of the 72.8 million shares sold, with the rest bought by Danish and international institutional investors.

 

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