DONG Energy's has set a potential $16 billion price tag on its stock market debut, giving investors a chance to buy into the growth in offshore wind power, but also into a business heavily reliant on government subsidies.
State-controlled DONG Energy on Thursday set a price range for its initial public offering at 200 Danish crowns to 255 crowns per share. This would give the group a market value of 83.5 billion to 106.5 billion Danish crowns ($12.6-16.0 billion), potentially making it the Europe's biggest IPO this year.
The company has grown rapidly since its creation 10 years ago, having built more than a quarter of the world's offshore wind farms with large projects in Britain and Germany.
But offshore wind power is one of the most expensive sources of renewable energy and still reliant on government subsidies.
DONG has a handful of large attractive offshore projects in Britain and Germany for development until the end of the decade.
"But the time after 2020 is quite a black box for investors," Morten Imsgaard, analyst Denmark's Sydbank (SYDB.CO)
"The five projects up until 2020 are extremely attractive, but that might not be representative of the landscape after 2020," Imsgaard said.
DONG said Thursday last year it derived 62 percent of its revenue on operational offshore wind farms from subsidies or other financial support such as Green Certificates in Britain.
It expects a significant portion of future revenue on wind power projects to come from subsidies.
It has made a net loss for each of the last four years totalling 22.3 billion Danish crowns ($3.36 billion), mainly due to impairment losses on its oil business.
"We expect to see a profit this year," DONG's chairman Thomas Thune Andersen told Reuters. "Much of the growth will be in wind power."
DONG said all of the countries in which it has offshore wind farms operating had long-standing support schemes, but it also said it could not guarantee that retrospective changes to support schemes for offshore wind farms would not occur.
In Britain, DONG's biggest market for offshore wind, the ruling Conservative government has been reining in spending on all renewables subsidies since it took power a year ago, saying the cost of technology has come down sharply and subsidies should reflect that.
The European Commission expects established renewable energy sources to become "grid-competitive" between 2020 and 2030 and that subsidies will be phased out accordingly.
Sweden's Vattenfall expects to be able to build offshore wind power projects without subsidies by the middle of the next decade.
DONG said it would sell up to 17.4 percent of its shares in the initial public offering and that the Danish state would keep a 50.1 percent stake.
The government sold 18 percent of DONG to a group of investors led by Goldman Sachs in January 2014. If DONG is valued at 100 billion crowns at the IPO that stake would have increased in value to 18 billion crowns from 8 billion in 2014.
DONG said the final offer price would be determined through a bookbuilding process from Thursday through to June 8. Shares will start trading on Copenhagen's stock exchange from June 9.
JP Morgan, Morgan Stanley (MS)
and Nordea are global co-ordinators for the listing while Citigroup
, Danske Bank, UBS, RBC, Rabobank and ABG Sundal Collier are also involved.
($1 = 6.6521 Danish crowns)
(By Teis Jensen; Additional reporting by Nikolaj Skydsgaard, Editing by Jacob Gronholt-Pedersen, Jason Neely and Jane Merriman)