Photographer: Simon Dawson/Bloomberg

Denmark’s Biggest IPO in Decades Seen Feeding Currency Hedge Bet

  • Danske says DKK may strengthen amid offshore interest in Dong
  • Offshore inflow comes as krone hits 2015 peg crisis levels

What looks set to become Denmark’s biggest initial public offering in more than a decade may add to pressure on the krone at a time when the exchange rate is already testing levels last seen during a 2015 speculative attack.

With 15 percent of Dong Energy A/S slated to be sold to the public next month, the potential demand from offshore investors could have a palpable effect on Denmark’s exchange rate, according to Danske Bank A/S, which is already advising pension fund clients to hedge for krone strength in the forward market. And with the threat of market disruptions rife ahead of Britain’s June 23 vote on European Union membership, there’s likely to be plenty of demand for assets sold from safe-haven economies, Danske predicts.

“It’s an interesting situation because this IPO comes at a time when there’s upward pressure on the krone and also at a time that’s very close to the Brexit referendum,” Jens Naervig Pedersen, a senior analyst at Danske in Copenhagen, said by phone. “The IPO will provide a new way to buy krone assets at a time when the krone is already strong.”

“We have seen the krone react to IPOs in the past when foreigners have bought shares, so it’s something that could have an effect,” he said.

Foreign investors buying into Danish companies have managed to move the krone on at least five occasions, according to a 2006 report by Denmark’s central bank. In 2005, the krone strengthened when Goldman Sachs and EQT Partners bought ISS A/S and it appreciated again the year after in connection with the takeover by five private equity funds of TDC A/S.

Denmark’s central bank uses monetary policy to defend the krone’s peg to the euro. It successfully fought back a speculative attack early last year when Switzerland’s decision to abandon its euro ties fanned bets that other countries with similar currency regimes may follow. The krone is now trading close to levels reached early last year at the height of the Danish peg crisis, prompting conjecture the central bank may soon act to stamp out any threats to its regime.

Goldman Sachs

Dong, whose biggest owners are the Danish state and Goldman Sachs, on May 12 unveiled plans to sell 15 percent of its shares to the public, with the government targeting a stake just above 50 percent, compared with its current 59 percent. Goldman has consistently referred to its stake as a long-term holding. Dong hasn’t commented on a possible price.

Three people close to the IPO preparations said Dong could be valued at about 100 billion kroner ($15 billion). Two of the people said the listing is likely to take place on June 10. The Danish Finance Ministry declined to comment.

The IPO puts an end to years of hand wringing, with successive governments since 2004 planning, and then pulling, a sale of Dong as markets shifted. Dong has tried, and so far failed, to sell its oil unit and wants to rebrand itself as a company focused on greener technology. It’s already the world’s biggest offshore wind-farm operator.

Now, with Brent crude rebounding about 75 percent from a January low and Copenhagen’s benchmark stock index recovering from the darkest hours of February, the market climate is looking more promising. Vestas Wind Systems A/S, the world’s biggest wind-turbine maker, is up more than 30 percent over the past year, underscoring investor appetite for renewable energy.

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