Oil at $30 Triggers Questions on Dong IPO as Stock Markets Reel

It is set to be one of Denmark’s biggest ever initial public offerings.

But since the Danish government in September unveiled its IPO plans for Dong Energy -- a utility built on oil and natural gas distribution -- both oil and the stock market have been far from accommodating. The question now is whether history will repeat itself and Denmark will again be forced to retreat from its IPO plans, like it did in 2008. That year, Brent crude peaked at $146 a barrel. It traded at about $31 on Wednesday.

But 2008 was the year the global economy sank into a full-on crisis. And though stocks have taken a beating recently, we’re far from the kind of rout that gripped markets eight years ago, according to Jens Houe Thomsen, an analyst at Jyske Bank.

What’s more, Dong’s owners have given themselves a deadline of early 2017 for the IPO, which Sydbank has previously estimated could value the whole company anywhere between 50 billion kroner ($7.3 billion) and 70 billion kroner. Finance Minister Claus Hjort Frederiksen has said he wants Dong listed as soon as possible.

“The market turmoil could in principle have an influence, but this has now become a political decision to IPO Dong Energy,” said Jacob Pedersen, head of share analysis at Sydbank. Though it would take a “regular melt-down of the stock markets to derail the IPO this time,” now is still “clearly not a good time to be preparing an IPO.”

According to the Finance Ministry in Copenhagen, “the preparations for a Dong listing are progressing according to plan” and “are of course being conducted with the market situation in mind.”

Another question is how the development in the oil price is affecting plans to divest Dong’s Exploration and Production unit. With Dong owners including Goldman Sachs targeting a greener, more wind-based future for the company, getting rid of the E&P unit is key.

“One might opt for two separate listings,” Thomsen said. “The likelihood of that happening is growing as oil prices sink.”

Dong is likely to do better in an IPO without the E&P unit. So even though the company has turned greener, its near-term fate is still closely tied to the price of oil.

“Dong Energy would be more appealing and more streamlined in an IPO if the E&P unit is sold off,” Pedersen said. “But it’s clear that selling it now would not be very good timing.”

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