Goldman Cash Brings Relief to Dong CEO as Deal Is Completed

Feb 06, 2014 7:56 am ET

(Updates with JPMorgan comment in 10th paragraph.)

Feb. 6 (Bloomberg) -- After weeks of turmoil that ended in street protests and a government split, Dong Energy A/S Chief Executive Officer Henrik Poulsen says a cash infusion from Goldman Sachs Group Inc. will resurrect the Danish utility.

“It has been very turbulent for us,” Poulsen, 46, said yesterday in an interview. “The most important thing for us is there’s a solution in place.”

Denmark last week pushed through a $1.5 billion sale of an 18 percent stake to Goldman to prop up the state-controlled company after it hemorrhaged money on natural gas projects. The deal, which dominated local media, prompted the Socialist People’s Party to quit the three-party ruling coalition and made Goldman the target of a popular protest movement, with polls showing two-thirds of Danes opposed the sale.

“It’s been quite a special experience for us,” Poulsen said. It’s still unclear whether Denmark’s reputation as a destination for offshore investors has been damaged, he said.

“The smoke needs to settle. To be the target of the media’s attention in this way is something that naturally affects a company,” he said.

Goldman Vehicle

Goldman, which will buy the stake through its European merchant banking unit in a company named New Energy Investment S.a.r.l., agreed to buy the stake after a “very, very detailed due diligence process where every stone has been turned here at the company,” Poulsen said. The Wall Street bank is partnering with Denmark’s two largest pension funds, ATP and PFA, which will own 4.9 percent and 1.8 percent, respectively.

Syd Energi A/S, one of five current minority owners, has welcomed Goldman’s involvement, saying it will boost the value of the company and increase the likelihood of an initial public offering. Dong said Oct. 2 the new buyers and the government have agreed to seek an IPO when “conditions are right.”

“Goldman does have some capabilities in addressing capital markets that the government doesn’t,” Gert Vinther Joergensen, chief financial officer of Syd Energi, said last week in an interview.

The yield on Dong’s 6.25 percent bond due 3013 dropped four basis points today to the lowest since Jan. 13, according to data compiled by Bloomberg. It’s eased every day since the Goldman deal was approved by a parliament finance committee on Jan. 30.

Narrower Losses

Daniel Vaun, an analyst at JPMorgan Chase & Co., today lowered his recommendation on Dong’s bonds to neutral from overweight, saying the benefits from Goldman’s equity injection are now reflected in the price.

Dong explores for oil and natural gas in the North Sea and is the world’s biggest builder of offshore wind turbine parks. The company said yesterday net losses are narrowing and debt shrinking after it completed a program of cuts and asset sales.

Goldman became the target of popular protest in Denmark after it emerged in December that the investment bank will receive some veto rights over how Dong is managed in exchange for its capital injection. Goldman has said it plans to follow the current management’s strategy and voiced support for Poulsen as CEO.

“We have expectations that Goldman will be able to take part in the relevant debates in the board room and that they can bring in experiences from other companies where they are active,” Poulsen said. “That’s my hope.”

‘Shady Partner’

According to Peter Kurrild-Klitgaard, a professor of political science at the University of Copenhagen, popular opposition to Goldman’s Dong purchase was in part based on misunderstanding.

“Most Danes don’t know the details of this deal,” he said in an interview last week. “A great many voters fear Danish politicians are surrendering control of the energy grid. Many think Denmark is selling all of Dong and not just 18 percent.”

Finance Minister Bjarne Corydon, a member of Prime Minister Helle Thorning-Schmidt’s Social Democrat party, fought off opposition to the deal from voters, unions and lawmakers, who said Dong should be kept in Danish hands. Poul Nyrup Rasmussen, a former Social Democrat premier, publicly urged Corydon to scrap the deal, calling Goldman a “shady partner.”

Frank Aaen, a lawmaker at the Red-Green Alliance which helps secure the government its majority in parliament, said Goldman’s plans to hold the Dong stake via units in Luxembourg, Delaware and the Cayman Islands suggest the Wall Street firm will try to avoid its tax obligations.

Tax Compliance

“Goldman Sachs complies, and will continue to comply, with all applicable tax laws in Denmark, Luxembourg, the United States and other relevant jurisdictions,” Sophie Ramsay, a spokeswoman at Goldman in London, said in an e-mailed response to questions last week.

The furore over Goldman’s bid for Dong has added to Prime Minister Helle Thorning-Schmidt’s woes. Denmark’s first female premier has been battered in the polls since taking power in 2011. To ward off a recession and deficits, she enacted measures that alienated many core voters.

The government, which now comprises Thorning-Schmidt’s Social Democrats and the Social Liberal Party, has started to means test services including study grants and childcare benefits to rein in public finances. It also requires Danes to work longer before retiring. Meanwhile, Danes bear the world’s highest tax burden relative to gross domestic product.

According to a web poll published by Berlingske on Jan. 31, 54 percent of Danes say Thorning-Schmidt has been weakened by the Socialists’ exit. The poll, conducted by Gallup in Denmark, included 1,194 web-based interviews.

Thousands of protesters gathered outside the parliament in Copenhagen last week urging the government to drop Goldman’s bid for Dong.

“Overall, the situation over the past weeks hasn’t been good for the company,” Poulsen said. “The debate has, after all, shown that Danes are very engaged in Dong Energy and feel strongly about the Danish ownership of the company.”

--With assistance from Peter Levring in Copenhagen. Editors: Tasneem Brogger, Jonas Bergman