Investors cannot get enough of Nordic IPOs. Literally. Dealflow has been so slow that those few transactions that have come to market are sold out within hours. However, investors are not downbeat: they have had secondary placements to keep them out of trouble and the prospect of privatisation across the region to look forward to. Philip Moore reports.
That there is strong demand for Nordic equities, locally as well as internationally, is beyond question. For proof, look no further than the overwhelming response to the recent isolated IPOs that have emerged from the region.
The highlight from Denmark, last October, was the Dkr6.2bn ($1.059bn) TrygVesta IPO co-ordinated by Morgan Stanley and Nordea, which was the largest Nordic IPO since Statoil in 2001. Priced at the top of its range, the TrygVesta deal was 16 times oversubscribed, with the retail book four times subscribed after 24 hours, according to Nordea.
This year, similarly robust demand has underpinned transactions such as the Nkr7.87bn ($1.08bn) IPO in May of Renewable Energy Corp (REC) via ABG Sundal Collier and UBS, which was Norway's largest IPO for five years, with demand pushing the price up 16% in its first trading session.
The Swedish success story of the year, meanwhile, came in February from the largest local clothing retailer, KappAhl. Its Skr1.6bn ($204m) IPO via Carnegie and Goldman Sachs was priced in the middle of its Skr52-Skr60 range and traded up 5% on its first day on the market.
Aside from those deals, supply at a primary level from Nordic equity markets has been thin on the ground in recent months. "In spite of what seemed to be a pick-up last year with very large IPOs such as Neste Oil, TrygVesta and Bergesen Worldwide, issuance across the region has been limited compared to the rest of Europe. The activity that we have seen has been focused largely on Norway in the oil, gas and alternative energy sectors," says Henrik Gobel, managing director and head of European equity syndicate at Morgan Stanley. "Activity in that sector was rampant in 2005 and has continued strongly this year."
In the absence of a vibrant IPO market, and with bond or bank issuance a more competitive source of funding for Nordic companies, secondary placements have been a more fertile source of dealflow for bankers than primary deals. "With the IPO market so quiet, most of the deals we have executed have been accelerated placements," says Edward Law, head of Nordic and Benelux equity capital markets at Deutsche Bank. "Those have included two placings for Sampo in Finland, as well as for Carnegie and Assa Abloy in Sweden."
Although Gobel says that the Nordic region has probably been the quietest in Europe in 2006, he is hopeful of an increase in activity in the latter stages of the year. "We believe there will be IPOs in the $300m-$500m range in the second half of the year," he says.
While high energy prices will continue to support activity in the Norwegian market, Gobel believes Sweden will also see a rise in issuance, in part stemming from private equity sponsors looking to use a solid equity market as an exit for investments made a number of years ago.
Others confirm that a number of private equity houses are starting to weigh up the potential of the stock market as a way of exiting investments. Ulrik Ross, head of Nordic region in Nomura's debt capital markets, says that the Danish cleaning and maintenance company, ISS, which was the subject of a controversial $3.8bn buy-out last year, is already being seen by its private equity investors as a candidate for a relisting.
Privatisation to drive supply?
Looking to the longer term, some bankers are optimistic that privatisation may re-emerge as a source of primary market pizzazz in the Nordic region. In Denmark, for example, the path was cleared for a sale of up to 50% of the utility, Danske Olie og Naturgas, by the government in October 2004, with bankers hopeful that an IPO will go ahead in 2007.
In the Swedish market, meanwhile, bankers say that they will be in a better position to assess the outlook for privatisation after this month's election, which was being contested as this report was being prepared. Fredrik Reinfeldt's centre-right Alliance for Sweden has indicated that it will look to sell off the government's remaining holdings in a number of companies if it succeeds in toppling Goran Persson's Social Democrats at the polls on September 17. By late August, the election was too close to call, because although the polls suggested that the opposition had inched ahead, the Social Democratic party, which has ruled in Sweden for 65 of the last 74 years, has developed a knack of recovering just in time in previous election campaigns.
"A change of government could be the most exciting thing to happen to the Nordic capital markets," says Bjorn Uhlin, head of Nordic fixed income origination at ABN Amro in London. "That could pave the way for further discussions on any potential sale of the government's holdings in companies such as Vattenfall, Nordea and TeliaSonera."