Innogy, the renewables, network and retail business of German utility RWE, could fetch up to 5 billion euros ($5.6 billion) and raise the largest amount in an initial public offering in Europe for nine years when it lists next month.
Germany’s No.2 utility is pooling and listing its healthy assets — grids, retail and renewables — hoping to attract investors who have dumped utility stocks due to their exposure to ultra-low wholesale prices.
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Innogy, which would be Europe’s largest IPO since Russia’s Bank VTB went public in 2007, will issue 55.6 million of new shares while parent RWE will put up as many as 83.3 million existing shares for sale at 32-36 euros apiece, it said.
This would give Innogy a market capitalisation of up to 20 billion euros, more than twice RWE’s current value, showing the appetite for regulated assets, which account for 60 percent of its profits, and the discount on RWE’s power generation assets.
Innogy said 940 million euros in binding purchases had already been placed and would be acquired by U.S. asset manager BlackRock on behalf of its clients, underlining the level of interest.
However, other investors were sceptical and said they would wait to see how the stock performed before buying it.
“I will certainly look at Innogy. But any decision to buy will be made once the price stabilises,” said Angelo Meda, head of equity and portfolio manager at Banor SIM in Milan.
“In big spin-off deals like this, prices tend to be very volatile for a month or so as investors switch from one stock to the other.”
Another fund manager, Ion-Marc Valahu at Clarinvest, said he wouldn’t buy into the IPO as he already owns RWE stock, which he likes because of the dividend it offers.
Aching under 28.3 billion euros of net debt, RWE will hold 75-82 percent of Innogy following the listing, depending on the amount of shares sold, handing it a tool to raise cash by selling additional stakes in the future. It wants to remain a majority shareholder in the long-term.
This stands in contrast to the restructuring process at larger peer E.ON, which wants to sell out of Uniper , its former generation- and trading unit spun off last week and whose business model has been met with a mixed market response.
“This move will both unlock value of Innogy’s under-appreciated assets and help with RWE AG’s balance sheet,” analysts at Jefferies wrote.
With its focus on regulated assets, Innogy’s business will be similar to that of E.ON, but with one key difference. E.ON will still carry the billions of liabilities related to the shutdown of its German nuclear plants.
In Innogy’s case, that responsibility stays with parent RWE, removing a major uncertainty for potential Innogy investors.
“We consider Innogy’s earnings, risk profile and dividend prospects more attractive than those of RWE and recommend avoiding RWE shares and buying Innogy shares directly, depending on valuation,” Commerzbank analyst Tanja Markloff wrote.
RWE, E.ON and Uniper shares all traded about 1 percent lower on Friday. Sell-side analysts have an average “hold” rating on both RWE and E.ON, while Uniper is an average “buy”.
RWE and Innogy have committed not to sell Innogy shares for a period of six months from the first day of trading.