There have been several significant German transactions this week, including a €633m sale of Evonik stock by RAG Stiftung, the foundation responsible for the discontinuation of coal mining in Germany, and a huge, €2.3bn capital raising by Delivery Hero to finance its acquisition of Woowa Brothers in South Korea.
Rising stock markets, renewed quantitative easing by central banks and a preliminary agreement between the US and China on trade have led to favourable environment for European equities, including German stocks, which were hit hard by the volatility that gripped markets in the first half of the year. That volatility had a negative impact on German ECM.
“Each individual company is performing differently off the back of the economic environment, but the mood is a good one,” said Thorsten Pauli, head of DACH equity capital markets at Bank of America in Zurich. “Normally in ECM when you have a down market like last year, in many cases you have a quick rebound the following year. We are not in a systemic downturn, like 2008 for example. We have a robust equity market fuelled by cash injections by central banks, so it is risk on and positive with respect to ECM.”
Both German transactions this week were heavily oversubscribed. Several sources close to the Evonik block said there had been increased interest from US investors, who have been trading back into Europe.
After the assassination of Qasem Soleimani, one of Iran’s top military commanders, by the US in Iraq at the start of January, markets were briefly rattled, but soon shrugged off the news.
“We had a rally at the year end and the outlook for the upcoming earnings season is positive, so from that perspective there is no reason for investors to hold back,” said another German equity capital markets banker in Frankfurt. “Across asset classes, a lot of people have gone out and taken advantage of the momentum there this week because nobody knows how long it lasts.”
Germany and the UK are traditionally the biggest sources of equity capital markets transactions in EMEA, but last year the UK was hamstrung by political paralysis caused by Brexit, and Germany struggled due to concerns about global trade and the health of its economy.
This led to a sharp slowdown in the number of IPOs and other ECM deals in the region.
This year could be different, as long as market conditions remain constructive. Several of Europe’s biggest IPOs this year are expected once again to come from Germany.
“The investor appetite that we have witnessed in January has been quite phenomenal, if you compare it to previous Januarys,” said Pauli at Bank of America in Zurich. “The mood on the market is very solid. The question for the market is always going to be how much issuance we will see across product ranges.
“There is definitely a pent-up pipeline of IPOs,” he added. “The question is whether it actually materialises.”
The IPO of Wintershall DEA, the German oil and natural gas company, will be the largest IPO of the year if it goes ahead in the second half. The deal is expected to raise around €5bn, according to market sources.
Several of the possible jumbo IPOs depend on the outcome of a dual track process.
Alongside Wintershall DEA, there is also the possible flotation of Siemens’ power and gas turbines business, which the engineering conglomerate has said it will spin-off.
Thyssenkrupp, the German industrial engineering and steel company, is also running a dual track process for its elevator business. If it is not happy with the price that can be achieved from the ongoing auction, Thyssenkrupp could move quickly towards an IPO instead, according to the banker in Frankfurt.