Biggest IPO in Danish History May Price Dong at $11 Billion

Updated on
  • State to remain majority owner in Dong Energy after IPO
  • From 2020, state has an option to cut its stake further

Denmark is preparing what may become the biggest initial public offering in the nation’s history as it sets a road map for the sale of state utility Dong Energy.

The government is giving itself a maximum of 18 months, but Finance Minister Claus Hjort Frederiksen made clear he wants the process to be swift. “The sooner we get started, the better,” he said in a phone interview from Copenhagen.

The whole company, which comprises units in oil, gas, wind parks and distribution networks, could be worth as much as 70 billion kroner ($11 billion), according to Jacob Pedersen, an analyst at Sydbank. It will be a “huge” IPO and likely to attract “enormous attention,” he said. Frederiksen, who said the state will hold more than 50 percent after the IPO, declined to give a valuation when asked.

Denmark had initially earmarked Dong for a public sale by 2018. The company was at the center of a dispute that resulted in a junior coalition member quitting the previous administration in protest after part of Dong was sold to Goldman Sachs last year. The Wall Street bank paid about $1.5 billion for an 18 percent stake. A number of lawmakers questioned the price, which they argued was too low. The government at the time said the cash injection Goldman delivered came at a crucial moment and under terms others weren’t ready to accept.

Dong said the IPO process will include a review of its Exploration and Production unit, which “operates in a structurally different market environment currently characterized by the significant drop in oil prices over the past 12 months.”

Credit analysts have argued in favor of a sale of the unit, which Bloomberg Intelligence estimates may be worth between $3.6 billion and $8 billion. “It’s a very wise move for utilities like Dong to sell their upstream units
because they are becoming riskier,” Elchin Mammadov, an analyst at Bloomberg Intelligence in London, said by phone. “However, the timing is bad now, and they should probably wait a bit for the oil price to go up.”

Pedersen at Sydbank says “it’s quite likely the strategic review of the E&P business will end with a sale.” It would reduce the company’s complexity and free up a lot of cash, both of which would help smooth the path toward a successful IPO, he said. The remaining units would focus on renewable energy sources.

“We strongly believe in the company’s long-term growth prospects as a sustainable energy company with world class capabilities within offshore wind and biomass,” Goldman Managing Director Martin Hintze said in an e-mailed response to questions.

The government said a potential divestment of the E&P unit won’t necessarily need to have happened before the IPO.

Dong said on Friday it intends to divest its gas distribution unit, as well as its oil and gas pipelines “at an appropriate time.” Taking all the moving parts and the IPO timeline into account adds to the difficulty of estimating a value for the whole company, Pedersen said.

While 70 billion kroner is at the top end of Sydbank’s estimated range for Dong’s value, the company could also be worth as little as 50 billion kroner, Pedersen said. That would still make it Denmark’s biggest ever IPO, topping the state’s 1994 sale of TDC. Back then, Denmark floated about half the phone company’s shares in a deal that valued TDC at around 40 billion kroner.

Shipping and oil conglomerate Maersk, which is also Denmark’s biggest company, is a strong candidate to buy Dong’s E&P unit, according to Pedersen. “It’s a perfect fit for Maersk,” he said. “We know that Maersk is looking for things to buy, and the strategic match couldn’t be better.”

After 2020, the Danish government can choose to cut its stake in Dong below 50 percent provided it gets parliamentary backing, the finance ministry said.

“It’s our ambition that the government should remain the majority owner, but we can’t make guarantees for all eternity,” Frederiksen said.