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IPO Undone by $1.8 Billion Pact Is a Danish History Lesson

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  • Pension funds to buy combined 3 stakes for 11.6 billion kroner
  • Nykredit had been on track to do an IPO early next year

It was supposed to be the biggest initial public offering of a Nordic bank in over two decades.

JPMorgan Chase & Co., Morgan Stanley and Danske Bank A/S were joint global coordinators. They were working toward an IPO early next year of Nykredit Realkredit A/S, a cooperative owned by customers and founded in 1851 to provide home loans to average Danish families.

But it all came to a sudden end when a group representing Nykredit’s borrowers put its foot down.

The lender’s biggest owner is Forenet Kredit. Its members are Nykredit’s borrowers and its mission statement is to ensure customers get the best terms. In a line reminiscent of the trade union movement, the group points out on its website that “a community can achieve results that individual borrowers can’t.”

Forenet Kredit, which owns about 90 percent of Nykredit, said on Tuesday it was walking away from the planned IPO. Instead, it agreed to sell roughly 11 percent of Nykredit to a group of Danish pension funds, for 7.5 billion kroner. The same pension funds will also buy stakes from minority owners, bringing the total capital injection into Nykredit to 11.6 billion kroner, or $1.8 billion.

“We see this solution as the best one as a whole,” Louise Mogensen, Forenet Kredit’s director, said in an interview. “We will have a very well harmonized shareholder group of long-term investors with a deep seated customer focus. And we maintain a high percentage of ownership. We value that highly.”

Many members in Forenet Kredit had been arguing for over 1 1/2 years that Denmark’s biggest mortgage lender couldn’t possibly go public. Tuesday’s announcement suggests the cooperative movement is a difficult one to take on in Denmark.

Nykredit, which dominates the country’s $480 billion covered-bond market and provides home loans to about 40 percent of households, said the offer from the Danish pension funds means an IPO is no longer needed to generate capital. To be sure, the lender also said its improved earnings outlook helped. It had tried to secure a similar deal earlier when its profits were less impressive, but investors weren’t interested.

PFA chief executive officer, Allan Polack, who led the group of funds behind the deal, said Nykredit no longer needs to build additional capital.

“The idea behind the IPO was to raise capital, but they do not need that much capital,” he told Bloomberg Radio. “We think actually they are self-supplied by capital, even in a Basel IV context.”

Denmark’s regulator had told Nykredit that without easy access to capital it would face higher requirements. With the money from the pension funds, Nykredit’s common equity Tier 1 capital requirement will fall by 3 percentage points, to around 16 percent of risk-weighted assets. 

Read more: IPO Market Stumbles in Denmark as $1 Billion Deal In Doubt

The deal is also the latest example of pension funds snapping up equity in an effort to prop up returns amid record-low interest rates. It comes despite regular warnings that corners of Denmark’s property market may be overheated, though the country’s biggest banks all say there’s no sign of a bubble. Meanwhile, foreign investors are piling into AAA-rated Danish mortgage bonds, with offshore entities now holding about one-quarter of the market.

Nykredit had been pursuing an IPO in anticipation of stricter capital requirements. The bank said on Tuesday that the acquisition would provide that capital, and enable Forenet Kredit to maintain an ownership stake of almost 80 percent. That’s more than it would have held under an IPO scenario.

But it’s not quite over yet. Mogensen says an IPO may still happen at some point in the more distant future.

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