Nets IPO disappointment has investors raising doubts on pricing

[COPENHAGEN] Less than two weeks after it was valued at US$4.5 billion in one of this year's biggest European initial public offerings, Nets A/S has become the target of investor criticism that the Nordic payments firm was overpriced from the get-go.

Here's what happened: Investors had lined up before shares started trading on Sept 23. Nets said the intense interest in the IPO had led the firm to close its books early. The market debut was brought forward to accommodate investor anticipation. On the first day, the shares initially rose 4.7 per cent. Then, things turned and by the close of trading, the stock was down 3.3 per cent.

Leonhardt Pihl, the head of the Danish Shareholders Association in Copenhagen, said the absence of the post-IPO bump that investors have come to expect was a let-down.

In fact, Nets shareholders have lost almost 4 per cent since the sale. They would have done better investing in the Copenhagen index of benchmark Danish stocks or even just holding Denmark's negative-yielding benchmark five-year bond. The Bloomberg index of European financial firms is broadly unchanged over the same period.

The stock has "performed worse than the market and you don't see that often with a new share issue," Mr Pihl said.

"We completely understand the many disappointed shareholders out there."

Deutsche Bank AG, Nets's stabilising manager, used its mandate to step in on the first two days of trading to support the stock. Ulrik Marschall, a spokesman for Ballerup, Denmark-based Nets, said the company doesn't comment on developments in its share price.

The company was sold by private equity funds Advent International Corp and Bain Capital, as well as Danish pension fund ATP. The consortium of owners behind the IPO agreed to buy Nets for 17 billion kroner (S$3.43 billion) from a group of Nordic banks, including Danske Bank A/S, Nordea Bank AB, DNB ASA and Denmark's central bank, back in March 2014.

To be sure, financial stocks have been pummeled amid concern that Deutsche Bank will struggle to pay fines to US authorities. Germany's biggest bank has seen its shares plunge almost 50 per cent this year, with losses since mid-September at around 10 per cent.

Nordea, Morgan Stanley and Deutsche were the main advisers on the Nets sale. The firm paid a total of 520 million kroner to all the bankers it hired, an amount that included the cost of refinancing some of its debt. According to Ritzau, which cites Insidebusiness, that's more than three times the amount banks took in fees to take Danish utility Dong Energy A/S public, which was Europe's biggest IPO when it took place in June.

Companies in Europe raised about US$22 billion from IPOs this year, about half the amount they obtained in a similar period in 2015 as political uncertainty in key markets affected investor appetite.

Some of the most notable sales have taken place in Denmark, including Dong and Scandinavian Tobacco Group A/S. The worst Danish IPO was OW Bunker A/S, a ship fuel provider that went bankrupt in 2014, less than a year after it went public.

"Normally, you'd expect the seller to set the price so that there's a premium for shareholders," Mr Pihl at the Danish Shareholders Association said. The pricing should ensure that "the stock gets off to a good start".

BLOOMBERG