WHEN A CAPI TAL I NJ E C T I ON C AU S E S H E AT E D P U B L I C DE B AT E
P R I VAT E C A P I TA L , PU B LIC CONTROVE RSY GOLD MAN SAC H S / DONG E NE RGY
DONG Energy, the largest energy company in Denmark, needed capital. The utility incumbent made an operating loss of DKK 6 billion in 2012, after having invested billions to consolidate its position as a renewable energy leader. Help came in the form of a DKK 11 Goldman Sachs became billion capital raise the target of popular from equity investments protest in Denmark made by Goldman Sachs after it was made public and Denmark ’s two in December that the largest pension funds, investment bank was
to receive some veto rights in the shareholder agreements.
ATP and PFA. The deal reduced the Danish State’s ownership from 81% to 60% and was agreed upon after a “very detailed due diligence process where every stone [was] turned here at the company”, said Henrik Poulsen, CEO of DONG Energy. Goldman Sachs’ investment equals an ownership share of 19%, with ATP and PFA owning 4.9% and 1.8%, respectively. The remaining share is held by minority shareholders from a range of regional utility companies in Denmark. The capital raise was part of the energy giant’s financial action plan announced in the beginning of 2013.
The public protests in relation to the deal caught the attention of international business media. The Financial Times, Bloomberg, the Economist, the New York Times and many more all reported how the deal almost brought down the government.
Public sector under pressure
In an interview with Bloomberg, Henrik Poulsen said that “DONG Energy has exciting and profitable growth opportunities. With the equity injection, we’ve almost accomplished our financial action plan and have thereby created the necessary foundation to follow our strategic ambitions in the coming years”. Goldman Sachs became the target of public protest in Denmark after it was revealed in December 2013 that the terms of the shareholder agreements gave the Wall Street bank veto rights over several major decisions. This led to a long, politically-laden debate about the appropriateness of the centre-left government’s decision to sell such a large share to an investment bank that for many represents rightwing ideology.
AN OUTSIDE VIEW OF THE “AFFAIR”
Why sell in the first place?
Like many European utilities, DONG Energy has suffered from the financial crisis. With an operating loss of DKK 6 billion, a financial hole needed to be filled. The Danish government decided to seek new capital, thus reducing its stake in the company. Was Goldman Sachs the highest bidder?
During the week when parliamentary hearings were to be held, the Danish television station TV2 reported that PensionDanmark gave a higher bid than Goldman Sachs, spurring even more controversy around the deal. However, the conditions accompanying the bid were different, making it more akin to a loan, according to government officials. How big a risk is Goldman Sachs taking?
The public protests in relation to the deal caught the attention of international business media. The Financial Times, Bloomberg, the Economist, the New York Times and many more all reported how the deal almost brought down the government. The Financial Times put the deal under scrutiny by looking at five issues:
Another point of controversy was that some claimed that Goldman Sachs didn’t take a risk equalling their advantages. If DONG Energy isn’t listed on the stock market as planned by 2018, Goldman Sachs can sell 60% of the shares back to the Danish government at the purchase price plus an annual interest rate. Goldman Sachs’ veto rights
Goldman Sachs has negotiated certain veto rights that none of the other investors get. The Danish government replies that this isn’t unusual when investors take a big stake in an unlisted company. Role of tax havens
Given the high tax rates in the Nordic countries, it has become a sensitive issue that the investment will be managed by New Energy Investment, a Luxembourg-based affiliate owned by shareholders in the Cayman Islands and Delaware. Goldman Sachs replies that it would be uncommon for an investor to set up an investment vehicle in Denmark because of one minority investment.
Public sector under pressure