Dong's €13.2bn IPO puts wind in industry sails

The wind industry can now claim the world’s biggest stock market listing so far in 2016. This week, Dong Energy has listed 17.4% of the company on the Nasdaq Copenhagen stock exchange.

The Danish utility closed the IPO to those looking to invest less than €400,000 on Tuesday, which is one day earlier than it had planned, because of higher-than-expected demand; and then closed to larger investors on Wednesday. This long-awaited listing has valued the world’s leading offshore wind developer at €13.2bn.

We see the success of this listing as significant for three reasons.

The first is that the listing, which has raised around €2.3bn for Dong, is a great show of support for the offshore wind sector.

Dong has the world’s largest offshore wind portfolio and has built more than one-third of capacity in northern European waters. It is currently adding to this with projects including the 1.2GW Hornsea 1, 580MW Race Bank, 330MW Gode Wind 1, 258MW Burbo Bank extension and 252MW Gode Wind 2.

The fact that investors large and small are keen to own shares in the Danish utility shows that they are confident in offshore wind to deliver reliable returns over the short term, and keep growing in the long term. Offshore wind may be a virtuous sector to invest in, but the investors would not be putting their money into Dong unless they thought it made business sense. Dong is a leader in Europe, and is looking to export its model to the US and Asia.

The second reason this listing is significant can be summed up in one word: SunEdison.

We all know the background behind this bankrupt developer, which this time last year was making a spate of acquisitions worldwide. A key problem for SunEdison was that investors decided this acquisition-heavy business model was unsustainable and sold their shares, which in turn exacerbated the company’s financial problems. SunEdison shares are now trading at less than 1% of their level one year ago, and its yieldcos are also under threat.

In terms of business models there is little or no similarity between SunEdison and Dong. The former tried to grow fast by making acquisitions and using clever financial tricks; and the latter has done so in a more measured way, by building schemes and then recycling capital so it can reinvest.

Even so, since SunEdison’s collapse in July 2015, many in wind have expressed concerns that retail investors would see listed renewable energy firms as toxic and refuse to invest. This Dong IPO shows there is demand for solid businesses.

And the third reason this listing is significant is that it is the largest stock market listing so far this year. It has been concluded against a backdrop of uncertainty in Europe over the UK’s referendum on continued membership of the European Union on 23 June; and it has been concluded despite three previous aborted attempts to list Dong on the stock market. This shows that investors see potential for growth in wind even if the UK votes to Brexit.

Despite uncertainty in Europe, but that should inspire confidence.

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