The IPO for UK oil and gas company Ithaca Energy was quickly covered on Wednesday after announcing the range for its £250m–£310m London Stock Exchange listing.
The float is slightly smaller than the £300m–£500m flagged when the registration document was filed but in line with investor feedback from pre-marketing.
Books were covered on the full deal, including greenshoe, around an hour after setting guidance of 250p–310p on an offering of approximately 100m secondary shares, representing around a 10% free-float.
The market capitalisation is approximately £2.5bn–£3.1bn, in line with expectations when the registration document was filed two weeks ago.
“Around US$3bn is what investors are looking at and we’ve started with US$2.9bn at the bottom end to provide a bit of a hook, going up to US$3.6bn at the top end,” said a head of syndicate involved, noting that the company reports in dollars. “We were covered quickly, so that shows that this has been a proper process.”
The syndicate head said that the size and speedy coverage was a result of listening to the market. “This is not the kind of market that you can afford not to listen to what people want,” he said. “All the deals that have worked have had very fast momentum and you can’t afford not to have it that way in this market.”
A second banker involved said that the “reality is that most people are happy to come off the bottom of the range. It’s a hugely appealing range and you need some insurance in this market. Almost everyone has moved to US$3bn-plus with a sphere of US$3bn–$4bn. But we feel comfortable off the bottom, we’re multiple times covered and we’re only at the end of day one”.
There are no cornerstones, as had been indicated earlier in the process. The syndicate head said that there were names that put themselves forward but the owner and seller, Israel’s Delek Group, was not focused on having them. He said that there are anchor indications.
“There is a good anchor dynamic,” said the second banker. “Culturally, cornerstones are not typical for the Israeli investor base. And we have plenty of visibility on where demand might come from so there was not a big desire to tie people into a forced range. And this range is slightly wider than you would typically see.”
While some investors have looked at free cashflow and PE to NAV, the focus is on dividend yield. On the price range, Ithaca Energy has an estimated 2023 dividend yield of 11.3%–14% compared with around 11.7% for North Sea oil peer Var Energi, 7% for Aker BP and 5.2% for Harbour Energy, although the latter two are carrying out buybacks and discounting that are closer to 11.9% and 12.9%.
“This is a very good asset and they have been completely clear about production,” said the banker. “There are estimates on cutting emissions and so on, but there is no ambiguity around what they are being valued on.”
From the filing of the registration document to Tuesday’s close, Var Energi shares have risen 11%, Aker BP is up 12% and Harbour Energy shares are fractionally down.
As expected, roadshows will be a mix of physical and virtual meetings. Investors have already had in-person meetings in Israel, London will have physical meetings and the US will all be done virtually. The banker said that following the publication of the range, more investors have requested one-on-one meetings.
Books close on November 8, with pricing and trading due the following day.
Goldman Sachs and Morgan Stanley are joint global coordinators, and joint bookrunners with Bank of America, HSBC and Jefferies. ING is co-lead manager.