Playing it safe: Nucera derisks IPO with cut-price valuation, cornerstones

Data InsightECM Pulse 27 June

Playing it safe: Nucera derisks IPO with cut-price valuation, cornerstones

Thyssenkrupp [ERE:TKA]’s hydrogen division Nucera may have surprised investors, after opening books today with a lower-than-expected valuation range and a couple of cornerstones in the bag.

A reticent European IPO investor base had already claimed one high-profile victim in the form of Turkish soda ash company We Soda, so the German conglomerate has taken stock of the market’s mood music.

The strategy is working thus far, with books covered on day one, according to a message seen by this news service.

With a EUR 19-EUR 21.50 price range, Nucera will be worth between EUR 2.4bn and EUR 2.7bn, below the previously mooted EUR 3bn-EUR 5bn ballpark.

Analysts’ equity fair value came at EUR 3bn to EUR 4bn, according to two sources close to the deal, which places the bottom of the price range at a discount of around 30% to EUR 3.5bn.

An investor looking at the IPO was pleased with the move. “Thyssenkrupp has listened,” he said. “It probably could have come lower, but this has a good IPO discount, and I don’t think it is going to price at the bottom, it is something we have wanted issuers to do for a long time.”

The sources said the discount reflected the troubles in the wider IPO market, as well as the fact that the success of the company is largely depended on its growth.

“The equity story is very much growth-oriented and that is part of the equation. Investors see that it is still early stage, so valuations need to be reasonable,” said one source. “The growth opportunity is incredible, and nobody thinks it is a pipe dream, but Nucera still needs to get there.”

Cornerstones to the rescue

As previously reported, Nucera had been on the hunt for a cornerstone. Last week, it revealed Energy Solutions Company (ESC), a subsidiary of Saudi Arabia’s Public Investment Fund (PIF), will buy 6% of the share capital post IPO, worth around EUR 144m to EUR 163m across the range.

BNP Paribas Asset Management UK Limited, on behalf of BNP Paribas Energy Transition Fund will subscribe for EUR 85m of shares across the range.

 Saudi Arabia is a major growth market for Nucera, according to the deal sources, given the company has supplied a two-gigawatt (2 GW) electrolysis plant to produce green hydrogen for the country’s futuristic NEOM project. The cornerstones represent a sector and a local specialist, which lends support to the equity story, said one of the sources.

The other live IPO, the privatisation of Romania’s Hidroelectrica, is also backed by three Romanian institutional investors as cornerstones, as predicted by this news service.

The two situations are different, in that Hidroelectrica’s cornerstones were likely going to be in the book so were just securing allocation, noted the investor. Nucera’s investors, on the other hand, are not typical IPO investors and are an example of incremental money brought into the book as additional support.

Cornerstone investors were a key part of Europe’s IPO market in 2021, with more than USD 35bn of IPOs priced with a named cornerstone investor, according to Dealogic data.

While the volume and number of cornerstoned deals dropped in 2022 to just USD 10bn, most of the major European IPOs priced in a fallow year had a cornerstone attached, most notably Porsche [ETR:P911],

Cornerstones have not featured in any of this year’s large transactions, Dealogic data shows, as investors became reluctant to attach their names publicly to deals following a string of poor market debuts.

But the addition of a large regional partner and ESG sector specialist in Nucera’s book shows that there are plenty of large investors willing to buy into IPOs, particularly ones with a green angle.

Nucera’s green credentials are driving the deal, said one source. “If Nucera had just been a standard industrial company, I don’t think it would be going ahead,” he added.

A marker for the market

Nucera’s IPO is seen as the benchmark for the post-summer IPO window.

Italian gaming firm Lottomatica [BIT:LTMC] was meant to cheer up a dire Q2 but its poor performance since listing has instead weighed on IPO hopefuls, including Nucera.

While Hidroelectrica is undoubtedly important, market players say it is less of a sentiment setter given it is largely a local privatisation story, akin to some of the Middle Eastern IPOs seen in recent years.

“Nucera is now the bellwether if it trades poorly. Even if the whole market tanks, everyone will remember it. “That will make deals in September almost impossible to do,” said one source.

ECM bankers on and off the deal will be praying for its success.

Thyssenkrupp declined to comment for this story.

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