The privatisation confirmed Dong’s successful transformation from a dowdy domestic utility with an attached oil and gas business into a pure renewables play at the very top of the global market for offshore wind.
The challenge was to find an approach that ensured the best possible valuation for the company’s existing activity, while taking account of the considerable potential of its pivot towards renewable energy.
“There was no shortcut to a valuation for the company,” said Morgan Stanley’s head of syndicate Martin Thorneycroft. “Investors had to do their own work and model every scenario. It was never going to be possible to simply offer shares at 10% discount to peer AN Other.”
“The value was driven by the offshore wind operation and the build-out plan to 2020, with a significant contribution from oil and gas as a bonus.”
Dong had three-quarters of its capital tied up in the development and operation of offshore wind farms, even though the activity produced just 34% of its earnings in 2015. Over the same period, the oil and gas business generated 53% of the group’s earnings, while using just 9% of its capital. The company said ahead of the IPO that it would retain the oil and gas business to finance investment in green energy, but subsequently decided to sell.
By almost every measure the deal was a success, not least because the planning had begun more than 12 years earlier when competition was introduced into the gas market. Mergers, politics and markets had all caused extensive delays, with Rothschild earning its fee having advised the government throughout.
The deal is the largest Danish IPO ever, just ahead of Tele Danmark’s DKr19.6bn IPO in 1994. It was more significant that the DKr19.7bn flotation (US$3bn at the time) in June was the first in EMEA to top US$1bn in 2016 and came only two weeks ahead of the UK’s referendum on EU membership.
Yet the book was multiple times covered when closed a few hours early on June 8, with global interest from around 500 institutional investors. About 8.8% went to retail investors, opening the door to more than 36,000 new shareholders.
The sale at DKr235 per share was above the mid-point of the price range and the shares ended the first day of trading with a 9.8% pop to DKr258, just above the DKr255 top end of price guidance. Shares topped DKr280 in August.
JP Morgan, Morgan Stanley and Nordea were global coordinators, and joint bookrunners with Citigroup, Danske Bank and UBS. Lazard advised the company and Rothschild advised the government.