Banks Pricing Dong Face $8 Billion Valuation Gap as IPO Planned

  • Dong announces intention to float, will sell at least 15%
  • Value may range from $5-$13 billion, Sydbank estimates

As Dong Energy A/S moves closer to an initial public offering, investors may face considerably greater uncertainty on the pricing of the Danish utility than would normally be the case in such a sale.

The company, which announced its intention to float on Thursday, could be worth as much as 85 billion kroner ($13 billion), or as little as 35 billion kroner, which is the equivalent of just over $5 billion, according to Jacob Pedersen, the head of equity analysis at Sydbank A/S. Dong plans to sell at least 15 percent of its existing shares to the public by the summer.

“There’s a plethora of swing factors to consider,” Pedersen said. “Investors will need to decide which direction they think oil is going to move in, where gas prices and electricity tariffs are headed and whether the government will continue to subsidize wind energy.”

This is not “simply going to be a question of estimating how much revenue needs to grow to justify a share price,” Pedersen said.

“The final price of the shares will depend on, among other things, the market situation and investors’ view of the company,” Finance Minister Claus Hjort Frederiksen said in an e-mailed statement. The Danish government, which holds a 59 percent stake in Dong, plans to keep a majority holding in the company.

Dong had tried, and failed, to divest its oil operations. In January, it revealed writedowns of almost $2.5 billion in the business unit as energy prices plunged. The company, whose second-biggest owner is Goldman Sachs, is also the world’s largest operator of offshore wind parks, an area it wants to focus on as it scales back its fossil-fuel operations.

“In the past year and a half every market that Dong operates in has gone against them,” Pedersen said. “Just think about what has happened to the oil price, though the wind energy business has developed very well.”

Given the extreme range in the potential valuation of Dong, finding the right price will be a “line dance for investors,” he said.

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