Oil Unit Without Buyers Leaves Dong CEO Facing Rough IPO Path

  • No buyers for E&P division amid oil price slump, CEO says
  • Sydbank says IPO now harder as Dong will look less streamlined

As Denmark prepares what may be the country’s biggest initial public offeringever, the hurdles are piling up.

Dong Energy can’t find a buyer for the oil unit analysts say should be sold off to give the state utility the best IPO price. On Tuesday, Dong wrote down the exploration and production unit by $2.3 billion.

“We were unable to make a transaction that would make sufficient sense to the company and the shareholders in the current market,” Chief Executive Officer Henrik Poulsen told Bloomberg. “The low oil price wasn’t the only factor. The market played a role.”

Dong will now have to hold on to the unit during the IPO, which the government has promised Goldman Sachs and other minority owners will be completed within 14 months. It’s not the best starting point for an IPO, according to Jacob Pedersen, chief of equity analysis at Sydbank.

“This means Dong will be listed as a considerably less streamlined business,” Pedersen said by phone. “All the stumbling blocks that could get in front of the IPO process have already arrived with stocks getting a disastrous start to the year, combined with very low power prices and oil prices falling of a cliff. It’s hard to imagine more headwinds for an IPO process.”

Dong, which is the result of a slew of mergers between Danish energy companies around the turn of the century, has for several years been trying to find the right balance between its operations in wind and thermal power, as well as oil and gas. When Dong last year said it hired JPMorgan to review the E&P unit, analysts suspected a sale was likely. Getting rid of the division would have meant Dong could be presented as a straightforward renewable energy stock for its IPO.

Poulsen said investment is likely to favor Dong’s wind unit, a direction Goldman says it backs.

“We’ll adapt the E&P unit over the coming months to make it part of the IPO,” he said. “We’re now moving closer to the point where we have the foundation for a prospectus.”

Before it's here, it's on the Bloomberg Terminal.