Between a block and a hard place: banks plot selldowns but volatility hits hopes

Data Insight ECM Pulse 12 October

Between a block and a hard place: banks plot selldowns but volatility hits hopes

Bankers are planning for one last window of block trades to end a dismal 2022 on a high, but investor losses and hesitant sellers may still thwart expectations.

Blocks are expected to make up the bulk of the rest of European ECM this year, said two ECM bankers. “It’s really the only game in town at the moment,” said one.

Another said the market could open in earnest towards the end of October and the beginning of November, once Q3 results are out of the way and sellers come out of corporate blackouts.

Underlying equity market volatility will undoubtedly weigh on decision-making though. Bankers predict windows of opportunity for blocks to be as short as one or two days, so sellers will have to be nimble to execute deals.

In the most volatile of years, investors have shown they are willing to take on block exposure, albeit in smaller chunks than they would have entertained in calmer times.

Performance in accelerated deals since the summer break has suffered from particularly vicious trading in recent weeks, with big downward moves in US indices. This is likely to put off investors from taking on risk so close to year-end.

“Nobody needs to own anything at the moment unless it’s a screaming ‘buy’ or is too cheap to ignore,” said a third banker. “Anyone who has tried to buy the dip this year has been punished and at this stage, I think many of them will sit out.”

Energy on demand 

Certain sectors remain favourable throughout the downturn, said the two first bankers, highlighting energy stocks. Many investors are placing reverse enquiries on energy companies, focusing on those that have known sellers given their recent listings, one added.

Norwegian oil & gas firm Var Energi [OSLO:VAR] comes top of the list, according to the banker. Sellers ENI [BIT:ENI] and HitecVision have sold down at the IPO in February and in a subsequent block trade on June 9.

The lock-up preventing both sellers from further share sales expired on September 7, according to Dealogic.

The share price is down around 17% from the previous block, after the company cut production estimates this week. That could tempt ENI and Hitec to hold fire on a further selldown, yet the company is still up around 19% from the IPO price.

Swedish OX2 Group [STO: OX2] is another name on bankers’ lists. The wind powered electricity producer listed in June 2021 but suffered in trading until the Russian invasion of Ukraine in February. Since then, the stock has surged over 70% and seller Altor Equity Partners monetised a SEK 1bn (USD 102m) block in June.

Altor’s lock-up ended on August 8, according to Dealogic, but the share price has also underperformed in recent weeks, hovering around last block’s price.

Spain’s Acciona Energia [BME:ANE] has also been in demand among investors, bankers said. The renewable energy company was floated in June 2021 by parent company Acciona [BME:ANA]

Acciona may have found the IPO valuation underwhelming, as reported at the time. But the company is now trading close to 40% above the offer price and 16% up year-to-date, even if down off a recent high over the last month.

The dip in performance could keep Acciona away from the blocks market, said two bankers who were close to the IPO. But should it choose to do a deal, demand for renewable energy exposure means investor interest would be plentiful, several sources agreed.

Altor Equity Partners and ENI declined to comment. HitecVision and Acciona did not respond to requests for comment.

Smaller is better

Alongside energy companies and other sector specific trends, there will be individual under-levered companies with strong financials that still appeal to buysiders, two bankers said.

“You may see a pattern from Q3 results where certain companies come out and lead the way, or perhaps it’s all so bad that sellers realise that markets are now at a new level and in both cases, we will see some selldown activity,” said the first banker.

One common theme is reduced deal sizes. “Investors want far lower average days trading volume, and have done really since the invasion, it is a liquidity issue for them,” said the second banker.

Last week saw a flurry of nine blocks across the region, for a combined deal value of USD 510m, with a EUR 144.24 m deal in France’s Vallourec [EPA:VK] the largest of the week.

Quality rather than quantity will win the day as ECM sellsiders bring a painful year to a close.

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