State of play: governments returning to ECM for funds

Data InsightECM Explorer 29 June

State of play: governments returning to ECM for funds

Governments across EMEA are returning to equity markets to sell state assets with new markets opening for investors.

This week the Irish government sold down a chunk of AIB Group [DUB:AIBG] and a price range was set on the IPO of Romanian Hydroelectric power giant Hidroelectrica.

Before the financial crisis, European governments regularly turned to equity capital markets to sell-down stakes in state-owned assets to raise funds.

France was a particularly buoyant hub of ECM sell-downs with deals like the USD 9bn equivalent IPO of EDF in 2005 and the USD 6.1bn listing of France Telecom, now Orange [EPA:ORA], examples of a muscular drive from the state to use equity capital markets.

Italy was also in on the party with the USD 9bn IPO of ENEL [BIT:ENEL], alongside Germany with large convertible bonds in KFW and sell-downs in Deutsch Telekom.

In the decade since the crisis, European government sales have mostly been focused on re-privatising banks they rescued, rather than transformative state sell-downs.

France’s wave of privatisation has slowed, EDF has been re-nationalised, and despite hope of renewed impetus following President Emmanuel Macron’s initial election victory in 2017, notwithstanding the USD 2bn IPO of Francaise Des Jeux [EPA:FDJ] in 2019.

But where Western Europe has slowed state sell-downs, there has been a pick-up in other markets. In 2019, Saudi Arabia sold a stake in national oil giant Saudi Aramco [TADAWUL:2222].

A wave of privatisations has continued in the Middle East, lifting EMEA’s moribund IPO market in 2022.

Now a wider range of governments are exploring these options at a time where debt costs are high and a strong US dollar piles pressure onto emerging markets finance.

The Hidroelectrica IPO has generated strong excitement among investors and this new service reported that after the listing of state-controlled airline airBaltic next year, there are a host of other companies being lined-up for sale, according to the country’s Minister of Finance Arvils Ašeradens.

“More governments in Europe are certainly analysing opportunities around national, sector-critic assets to bring in fresh funds,” said an ECM advisor. “It is a move that fuels momentum and usually gets positive feedback both from the economic and political perspective."

“It instantly speaks of growth, and it activates a chain of work for local advisers and opportunities for investors. If done correctly, it can really shift the narrative for a government or a party – especially at a time when they are looking for funds in an unstable market.”

Hidroelectrica is also following the example of Saudi Arabia with a local listing rather than picking an international exchange for the IPO. It is also, as predicted by this news service, targeting a largely local book of investors, including some retail.

Latvia is also targeting its local exchange.

This approach helps to grow local capital markets as well as provides funds for the government and can, as was the case in Saudi, spur more businesses to list on the local exchange.

For a wide range of governments, equity is becoming increasingly attractive.

Keep up to date with all ECM deal activity with Dealogic’s market report.

Analytics by Raj Saiya

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