Salvaging Evonik IPO an uphill struggle

FRANKFURT Mon Jun 11, 2012 4:40pm BST

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FRANKFURT (Reuters) - Prospects for Evonik's second IPO attempt dimmed on Monday as investors made it clear that proposed valuations for the German specialty chemical company were too high, saying only a big discount to listed peers might do the trick.

"The market right now is not willing to pay for projected long-term earnings," said one institutional investor, who described Evonik as "a super company, a gold mine", jittery markets notwithstanding.

"The market wants an extreme discount and if that discount is not there, no one will take the risk," said the investor, adding prevailing market volatility required an IPO discount of more than 20 percent on the multiples of established groups.

Evonik's owners - German state-controlled trust RAG and buyout firm CVC - said on Sunday Evonik was increasingly unlikely to fetch an appropriate price if it listed soon as initially planned.

Sources close to the matter had told Reuters that the owners had once hoped the IPO would value Evonik at 15 billion euros ($18.7 billion), after subtracting 1 billion net debt.

Talks with potential investors in the next few days would determine further steps for the maker of acrylic glass, animal feed additives, superabsorbents for diapers and battery chemicals, the owners said on Sunday.

The 15 billion euro valuation assumed a multiple of at least 6.5 times earnings before interest, tax, depreciation and amortization and an IPO discount of about 10 percent.

Financial markets' relief at Saturday's euro zone deal to lend Spain up to 100 billion euros to recapitalize debt-laden banks was not shared by prospective Evonik shareholders.

"In the current market environment, 15 billion euros is unrealistic. They will not get it. With a 20 percent discount you might be able to convince investors," said one manager at a large German mutual fund company.

He said he would recommend Evonik owners cut the size of the IPO to 10 percent of shares outstanding to salvage the IPO. RAG and CVC could then wait for better market conditions before selling more shares on the open market.

Sources have told Reuters, however, that banks managing the sale have told RAG not to cut the size of the float from about 30 percent because larger investors would be put off by thin trading volumes.

RAG and CVC said May 25 they would press ahead with plans to list in Frankfurt in what would be Europe's largest initial public offering in more than a year.

A decision is now slated for the June 18 meeting of RAG's board of trustees, a day after elections in Greece anticipated by markets as they try to gauge whether the country will be able to stay in the euro zone.

Europe is a key market for Evonik, accounting for 55 percent of group sales last year.

RAG, a state-owned trust that will bear the liabilities of Germany's wound-down coal mines, owns 75 percent of Evonik while private equity firm CVC holds the rest.

A string of flotations across the world have been blown off course by volatile financial markets, amid fears the euro zone debt crisis was dragging down global economic growth. Earlier this month, motor sport racing company Formula One delayed a Singapore IPO worth up to $3 billion.

Should RAG abandon the IPO, it would be the second time Evonik has pulled the plug. RAG said in April last year it was preparing to take Evonik public, but put the plans on ice in September due to weak markets.

Deutsche Bank (DBKGn.DE) and Goldman Sachs (GS.N) are joint global coordinators and joint bookrunners for the offering. BofA Merrill Lynch (BAC.N), Credit Suisse (CSGN.VX) and J.P. Morgan are additional joint bookrunners.

(Additional reporting by Matthias Inverardi in Duesseldorf; Writing by Ludwig Burger; Editing by Dan Lalor)

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