Recent volatility caused by the banking crisis has led investors to demand greater discounts in block trades, but the sell-downs in De Nora [BIT:DNR] and Nexans [EPA:NEX] last week show that those playing a part in Europe’s transition to green energy are reaping the pricing benefits.
The EUR 196.4m sell-down in Italian water technology and hydrogen company De Nora by SNAM and members of the company’s founding family was priced at a 7.5% discount, visibly wide. But the 11.5m share sale represented around a 5.7% stake in the company, meaning a Dealogic Price of Liquidity (PoL) ratio of just -1.3x, tighter than all the major trades seen since the collapse of Credit Suisse.
The EUR 336m trade in French cable company Nexans saw a similar dynamic, pricing at an even tighter PoL ratio of -0.98x given the 9.4% discount on a 9.6% stake sold.
Since CS’s downfall, there was a EUR 1.4bn mega deal in Mercedes Benz [ETR:MBG], sold by Kuwait Investment Authority, followed by a EUR 270m block trade in coffee firm JDE Peet’s [AMS:JDEP] on 29 March, sold by Mondelez International [NASDAQ:MDLZ] and a EUR 152m block trade in specialty chemicals company Azelis [Brussels:AZE] sold by PSP Investments.
The Mercedes Benz block had a PoL ratio of -1.94x, JDE Peet’s deal priced wider with a PoL ratio of -2.9x and the Azelis trade a PoL ratio of -2.5x.
Different buyers
Part of the driver behind green premiums in blocks is the different buyer base. While most blocks are dominated by event-driven hedge funds, green deals benefit from wider long-only participation, said an ECM banker away from last week’s deals.
“There are so few of these names in equity, it affects the pricing of blocks,” he said. “It is almost an entirely different book in these trades, the hedge funds won’t pay that premium and there are a different subset of long-only investor willing to pay that premium to get that exposure.”
He added that environmental strategy funds are also often happy to anchor ECM deals in environmentally-favourable stocks often coming from institutions that are otherwise rarely ever seen in Europe’s accelerated equity capital markets.
Sources close to both the Nexans and De Nora deals said the trades benefitted from strong participation from long-only investors.
“Of all the names we had out there, De Nora was one of the most popular in terms of reverse interest by long-only investors,” said one source close to the block. “Thematically, it is in the right place and people knew it was a possible seller.”
A second source close to the deal said that long-only investors were prevalent in a multiple-times covered book. Most investors were US and French long-only investors.
“US investors are attentive to cleantech investments, particularly following Biden’s infrastructure investment programme,” he said.
While De Nora is a clear investment in hydrogen, Nexans is a major player in the global shift to sustainable electrification, so got the same green premium.
The Nexans deal was not on the buyside’s radar as the selling shareholder, Chilean firm Quinenco SA, decided to reduce its position in the company after being a steady shareholder for over a decade.
Far from being a hindrance, the deal provided a major liquidity event for buyers, said a source close to the deal. Aside from just being a chance to buy a rare name, demand was spurred by Nexans’ sustainable story.
“People are looking for any opportunity to buy energy transition and clean energy stocks,” he said pointing to the company’s efforts on building a network for renewably sourced electricity.
A second source agreed that unlike the De Nora deal, the Nexans block was far from expected but that did not affect the huge levels of demand, with investors happy to get exposure to the name at a 9.4% discount, even if it was a large stake sold.
The angle around energy transition and sustainable electrification drove demand for the name allowing the deal bookrunners to tighten the discount from initially wider levels.
Bank of America and Goldman Sachs ran the De Nora deal. Bookrunners on Nexans were Goldman Sachs, Morgan Stanley and Societe Generale.
SNAM and the De Nora family declined to comment for this piece. Quinenco did not respond to requests for comment.
IPO opening?
In the same week as De Nora and Nexans’ deals, there was a EUR 333m green convertible bond in Nordex [ETR:NDXI]. Bankers close to the convertible bond market said that while green convertible bonds are popular, they do not command the same premium as straight green equity given the fewer sustainability requirements by the investor base, which is also smaller.
But, there may be some read across to IPOs. It was reported last week that Thyssenkrupp [ETR:TKA] will look to restart the IPO process for its hydrogen unit Nucera, with a possible listing targeted for June. “Given the thematic, that listing is going to work whenever Thyssenkrupp is ready to list it,” mused the ECM banker.
The more pureplay renewable energy companies that list in the years ahead, the less already listed firms will benefit from their special status. But for now, it’s a thematic that remains evergreen.
