The return of German state-owned development bank KfW to equity capital markets on Tuesday with a €2.17bn accelerated bookbuild in Deutsche Post was a significant moment after an absence of more than a decade, and comes amid a wave of privatisations from European nations.
KfW employed Rothschild as an adviser to run a process similar to when Germany sold shares in Deutsche Lufthansa in September 2022.
A competitive process among banks – ie, an auction – is typical for KfW though this had additional steps that included sounding out investors in advance of a second round of bidding.
Banks were asked to provide indications of price they would guarantee for the block sale of 50m shares, representing 4% of Post. The three high bidders then wall-crossed selected accounts before a final round of bidding.
Bank of America, BNP Paribas and JP Morgan led the wall-crossing after the first round, though after the final round it was BofA, JPM and Deutsche Bank which were named joint bookrunners. A banker involved said they only found out the final roster a few minutes before launch.
"Depending on the circumstances, the involvement of a financial adviser like Rothschild can provide value, for instance in having an organised, sound and smooth process and in decision-making," KfW treasurer Tim Armbruster told IFR. "In the end the price depends on the market circumstances prevailing at the time."
The ABB priced at €43.45 – the low end of guidance – for a 2.2% discount. The book was in the region of 100 lines and 2.5 times covered. Long-only investors were present but comprised a very small part of total demand, perhaps inevitably with such a small discount offered in a stock that trades around €300m per day. The top 10 investors got 50% of the shares, said a second banker involved.
The first banker involved said the transaction would have needed to come with a higher discount to get more long-only investors involved, but the protracted auction worked in securing a top price for KfW while not pushing so far as to leave banks stuck.
Investors were prepared for the deal after reports last year that KfW planned to raise around €4bn from its holdings of Post and Deutsche Telekom for the government to invest in Deutsche Bahn.
Since 1997, the development bank has been in charge of selling the German state’s shares in Deutsche Telekom and Deutsche Post, which also operates under the DHL brand. Yet even as equity markets have gained ground in recent years, the jumbo equity sales for which KfW was once known have been absent. KfW last sold Post shares in 2012 (though its stake fell in 2013 when exchangeable bonds matured) and hasn't sold Telekom shares since 2006.
"KfW has been and is in a continuous dialogue with the federal government. The timing of particular transactions is subject to prevailing market conditions and the respective application of market instruments," said Armbruster.
KfW is left with 16.5% of Post and could sell up to 5.4% of Telekom, as the combined KfW and direct state holdings must remain above 25%.
Previously the bank has used exchangeable bonds and warrants to monetise its stakes and Armbruster said KfW had shown flexibility in the past and there are many tools it can use.
Shares were below the placing price following the sale. They closed on Wednesday at €42.09, 3.1% below ABB pricing, and were trading around €42.39 on Friday afternoon in London.
The second banker said privatisations remain a theme this year after a notable pick-up in late 2023. Governments in Italy, the UK, Ireland and Greece are expected to sell shares in listed companies.