Uniper and Innogy

Big Fall IPOs to Revive a Quiet Year

Das im Bau befindliche neue Kohlekraftwerk 4 in Datteln (Nordrhein-Westfalen), aufgenommen am 02.11.2012. Das alte Eon-Kohlekraftwerk in Datteln darf wie erwartet auch in den nächsten Jahren weiterlaufen, um Strom für die Bahn sowie Fernwärme zu liefern. Darauf haben sich das nordrhein-westfälische Umweltministerium, die Bezirksregierung Münster und Eon verständigt. Foto: Marius Becker/dpa +++(c) dpa - Bildfunk+++
The coal power plant at Datteln is currently owned by E.ON but will soon be part of the spin-off Uniper.
  • Why it matters

    Why it matters

    IPO volume on German stock markets has fallen well short of last year, which was a boom year. Despite two major IPOs planned for September, it remains unclear whether this year’s total IPO volume will reach 2015 levels.

  • Facts


    • So far, only two companies have entered the Prime Standard segment of the Deutsche Börse this year, with a combined volume of only €330 million.
    • In 2015, 14 companies entered the Prime Standard category.
    • While a few companies that went public this year and last year have seen their share price increase, 10 of 16 top issues are trading lower than their issue prices.
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September 5 is a special day, and not just for Americans. The Labor Day holiday in the United States marks the beginning of the final phase in the presidential race between Republican Donald Trump and his rival, Democrat Hillary Clinton. It also marks the end of summer vacation for many Americans.

On this side of the Atlantic, it’s a good time to launch a busy fall in German initial public offerings. That’s because German companies planning major share placements soon will be depending on investors from abroad. They include IPOs of energy utility subsidiaries Uniper and Innogy, both worth billions. Their parent companies, E.ON and RWE, are turning two businesses into four. Another IPO, that of IVG’s real estate subsidiary Office First, is also in the offing.

Consortium banks and advisors like Martin Steinbach of EY anticipate a comeback in IPOs, with a volume expected to reach last year’s levels. With a volume of more than €7 billion ($7.8 billion), 2015 was the best year for IPOs since 2007, which was a boom year, with just under €8 billion in IPOs.

But those levels are still a long way off. So far only two companies, wind turbine manufacturer Senvion and biotech company Brain, have newly entered the top segment of Deutsche Börse, Prime Standard. Together, the two IPOs amounted to an issue volume of only about €330 million. There were also two other small issues: small loan provider My Bucks and Decheng Technology. Issues in the billions will be needed to reach last year’s level.

“So far the current year has fallen well short of expectations in Europe,” said Christoph Heuer, who runs the German share issue business at Goldman Sachs. IPOs and fast placements have been especially hard-hit, with volume declining by more than 50 percent in some cases.

“So far the current year has fallen well short of expectations in Europe.”

Christoph Heuer, Goldman Sachs

“The first half of the year was volatile with geopolitical crises, a slowdown in China and falling oil prices,” Mr. Steinbach of EY told Handelsblatt. “That led to uncertainty and big swings on the markets. It calmed down for a while. However, with the Brexit vote, suddenly the high level of uncertainty was back.”

Last year, was a boom year for IPOs in Germany, with a total of 14 companies making the leap into the Prime Standard category. They included names like Bayer chemical subsidiary Covestro and auto parts supplier Schaeffler.

Real estate company Ado Properties is one of the top performers among the companies that went public this year and last year, with its share price rising by more than 96 percent, followed by Covestro, with a gain of more than 87 percent.

However, 10 of a total of 16 top issues are trading in negative territory, in some cases substantially. This applies to fashion company Steilmann, which is now insolvent. Online baby outfitter Windeln.de has also seen a massive drop in its share price, which never managed to top the issue price of €18.50. The share is currently trading at €4.

Still, there are strong arguments in favor of an optimistic outlook in the coming months. “The environment for IPOs has improved considerably, after Great Britain’s Brexit vote initially shocked markets in the middle of the year,” said Jörg Dimeg, head of capital market consulting in German-speaking countries at Lazard. Markets in the United States are headed for all-time highs, and Germany’s benchmark DAX index is back above the 10,000-point threshold. Besides, said Mr. Dimeg, price fluctuations have returned to a normal level. High volatility is toxic for IPOs, making it difficult to find stable prices in the medium term.

There are certainly no price problems at Uniper, a subsidiary of energy company E.ON. Uniper will be spun off and its IPO is scheduled for September 12. The almost 600-page stock exchange prospectus, with information for investors, was published at the end of last week. The spin-off will be entered into the commercial register at the end of this week, which will kick off the whole process.

E.ON shareholders will receive one Uniper share for every 10 shares they own, with a corresponding value of €2.5 billion, or 47 percent of all shares, with analysts estimating the market value of the new company at about €5 billion. This would be significantly less than the book value, which is about €12 billion, following the latest write-offs. E.ON chief executive Johannes Teyssen told the Frankfurter Allgemeine Sonntagszeitung that “it is certainly possible that we will have to make some write-offs,” but added that assets were “valued to the best of our knowledge and belief.”

It will only be possible to determine exactly how high the write-offs will be after the first trading day. Experience with spin-offs – such as that of Osram from electronics giant Siemens in 2013 and Lanxess from pharmaceutical and agricultural chemistry group Bayer in 2005 – suggests that trading volume increases rapidly in the first week and that large price fluctuations are possible. Replacements, which must be managed by consortium banks JP Morgan, Morgan Stanley and Citi, are difficult. On the first day of trading, E.ON and Uniper will be two companies on the DAX instead of one, and the index will comprise 31 members for that day only.

06 p28 Winners and Losers-01

This means that many E.ON shareholders will have to sell by the end of the first trading day if they are required to hold only DAX shares. With the Uniper share, E.ON is primarily appealing to so-called value investors, and the dividend policy is structured accordingly. Uniper plans to distribute €200 million in the transitional year, and dividends are expected to comprise 70 percent of operating cash flow in the coming years. Hedge funds, as over-the-counter players, will attempt to become involved in the first few days and profit from the expected, substantial price fluctuations.

Energy company RWE’s spin-off of Innogy will be this year’s second major issue, and preparations for the IPO have already been made. “For companies that are not already well on their way with preparations for their market plans today, an issue in the short window between October and mid-November will hardly be feasible,” said Stefan Winter, a member of the executive board of Swiss bank UBS in Germany.

In the case of Innogy, new shares will primarily be sold as a result of a capital increase. If this succeeds, 10 percent of shares in the RWE subsidiary will be in the hands of new shareholders. Whether RWE also sells off a small portion of its Innogy shares at the same time will depend on the mood in markets, say financial insiders, who believe a volume of €2 billion is possible. It is unclear whether real estate company Office First’s IPO of just under €1 billion will materialize. The company could also be sold at the last minute to financial investor Blackstone, say financial insiders.

One thing is clear: Interest in German equities has increased again after the Brexit vote, said Lazard banker Mr. Dimeg: “International funds are placing more emphasis on the European continent. This plays into the hands of stock market candidates.”


Robert Landgraf is Handelsblatt’s chief financial markets correspondent. Susanne Schier contributed to this article. To contact the authors: landgraf@handelsblatt.com, schier@handelsblatt.com 

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