Goldman Sachs buys fifth of DONG

[Masada]

They've already poured money into DONG and voted for a center left government. So kicking in additional funds ought not to be a big issue. And if it was, there's always institutionals you can tap for funding.

 

[Angst]

Which is why I wrote "political". The voters might not think it's a good idea to pour money into Dong.* My point is that there could be non-economic reasons for doing it.

*Although that might have changed now with the public uproar.

I am personally very fond of DONG. It's one particular thing about Denmark I'm really proud to boast about. I wouldn't mind it. I don't know the common stance towards it, of course; I don't understand how it could cause an uproar the other way around. Perhaps spin could similarly twist the situation into 'a center-left government selling out by supporting big, failing corporations' - but isn't it at least somewhat similar to bailing out DSB? They have even worse rep with the common man, but people acknowledge it necessary, don't they?

(for the unitiated, DSB is Danske Statsbaner, or the Danish Public Railroads system)

edit also i don't really know about any situation where dsb was bailed out. it was merely a hypothetical. i just question how a stimulus into dong could hurt the centre-left politically. isn't green dreaming something really central to their program? isn't it better bailing out green corporations than the banks, which admittedly caused uproars?

 

[Yoda Power]

You're very fond of Dong? After years of massive investment fails and the borderline corruption scandal of 2012, Dong is one of the things about Denmark you're proud to boast about?

Masada might be right, but I don't think he is aware of the current political climate in Denmark, where pretty much everybody hates the government and there's a big right-swing in the opinion polls.

 

[Angst]

You're very fond of Dong? After years of massive investment fails and the borderline corruption scandal of 2012, Dong is one of the things about Denmark you're proud to boast about?

Masada might be right, but I don't think he is aware of the current political climate in Denmark, where pretty much everybody hates the government and there's a big right-swing in the opinion polls.

I'm not saying they're doing a good job, but I'm blindly accepting it because hey, windmills. I admit it's stupid, but that's why I noted I was unaware of the current stance towards DONG.

I haven't paid much attention to politics in Denmark recently. (And 'recently' here covers a few years) - I've mostly been occupied with developing my own literature and my musical studies. That's partly why I do stuff like starting this thread. I'm asking questions and, well, if I'm wrong about something - like now, probably - I'm open to be corrected about it.

So yeah, sorry for being ignorant.

 

[Hygro]

They have a pretty diverse portfolio, so I wouldn't be surprised if they did. But they'd be holding that for reasons other than the modest ROI. GS just has a different sort of approach to investing that's much more aggressive than the acquisition of something an institutional would like.

EDIT: Done so more reading. So here's some facts:

• There seems to be a plan to privatize DONG by 2018.
• DONG's credit is all bbb which is three notches above junk.
• There's a clause in the contract which allows the investors to sell their shares back to the government in 2017 if the float doesn't take place. The terms of the buyback are not public.
• Goldman's also has the right to veto board appointments, new acquisitions, the issue of new shares of the raising of hybrid capital
• Two pension funds are also buying in for a total stake of 7% (5% and 2% respectively).

So what does this mean? Well there's probably 'naff all risk in this for Goldman's if things go south because the terms of the buy-back are going to leave better off. Why? Because otherwise Goldman's would be interested in investing. Arguably, it isn't even investing: all it's doing is lending money to DONG at rates higher than what DONG could borrow money from the government.

So why is the Danish government doing this? Because it wants to bring in Goldman's so it can blame them for all the cost cutting and staff cuts preparatory to a privatization. Goldman's will of course help them decide where to make the cuts and work on getting the ratings agencies on side to reduce borrowing costs for DONG.

I suppose this all makes sense if the current Danish Government believes that the commitment to privatize DONG by 2017 will stick till then. (I suspect it will come hell or high water because of the terms of the buy-back which might be calculated to guarantee just that outcome. Why? Because it was knocked back in 2008... and let's just say that the government departments who drive this kind of thing have long institutional memories).

Is this the wisest thing to do? If the privatization goes off it's not the worst thing. It should at least maximize the government's take from the sale provided Goldman's contract aligns it's interests with the governments. Now if the deal falls through because the next government doesn't want to go through with the sale... it'll be a freaking disaster because Goldman's will walk away with a nice pay-day.

Is this what I would have done? I don't know. DONG seems to have made some bad decisions of late. It built a big gas power station at Severn in the UK in 2010 but sold out of it at the end of last year for a significant loss. It also seems to have built a lot of underpeforming wind assets in the last 7 or so years. But I'm not sure of the specifics: at a guess DONG built them on the basis of economic modelling that assumed a European recovery that hasn't really materialized. But really, I don't know what I would have done. It's a hard one.

But I guess this could be a good thing if it ensures the financial health of the company preparatory to it being sold as a nice lean and well-performing infrastructure asset fit for purchase by Danish pension funds. A little evil now for a lot of good in the future perhaps.

This is a badass post. Hats off for theorizing that it's so GS can be the fall guy in return for money. But GS cares a lot about its image as an equitable, pro-people, ethical, finance for good company. Would they really subject themselves to a PR campaign for cash? What's their counter move to maintain their veneer of integrity? And let's be rule, as much hate as they get for being the bad guys, unlike their uglier siblings, somehow people have a soft spot for GS. They do everything they can to make sure we do.

 

[Masada]

Masada might be right, but I don't think he is aware of the current political climate in Denmark, where pretty much everybody hates the government and there's a big right-swing in the opinion polls.

If that's the case, just go with the institutionals. Two are already taking pretty significant stakes. It wouldn't, I think, be impossible to go find another few.

What's their counter move to maintain their veneer of integrity? And let's be rule, as much hate as they get for being the bad guys, unlike their uglier siblings, somehow people have a soft spot for GS. They do everything they can to make sure we do.

They've probably already got a Danish PR firm on auto-dial, promised half the public servants they've had dealings with a job in the future, and, I dunno, have in-principle support from the USG if things go really pear-shaped. Is Denmark negotiating a FTA or something, I wonder?

 

[Hygro]

They've probably already got a Danish PR firm on auto-dial, promised half the public servants they've had dealings with a job in the future, and, I dunno, have in-principle support from the USG if things go really pear-shaped. Is Denmark negotiating a FTA or something, I wonder?

Could be. Certainly a start but unless the social-economists at GS think Denmark's opinion is insignificant, there's gotta but something more. GS cares deeply about its progressive image--I wonder if they're using this as a "see, we're in league with social-democratic public institutions because we're down with all of that" and instead of just being the recipients of money, they're actually (in opportunity cost etc) using this process as a PR campaign to maintain that credibility.

I'm gonna go on a limb with this part. Finance isn't cool anymore, but GS still is. Cool, except for a couple years in the later 90s until Katrina, has been in realm of progressives and left-of-center. Most the top talent coming out of universities are going to be into both coolness and be more progressive overall, and GS needs them to maintain their edge. So GS is investing in itself culturally if it can get a deal like this and not go into predator mode.

 

[Kaitzilla]

...What to discuss in this thread? ... deal.:p Denmark should count their fingers.

 

[Yoda Power]

As a note for the non-Danish readers of this thread:

The deal is still on. But one of the coalition partners in government withdraws. The Socialist People's Party loses six ministries, among these the Minister of Foreign Afairs and Minister of Taxation. They also have to find a new chairman, as the one they had have been overthrown.

Reads like Shakespeare...

The partial sale of DONG Energy to Goldman Sachs took a shocking turn this morning after Annette Vilhelmsen, the head of government coalition party Socialistisk Folkeparti (SF), announced that she would step down as head of the party and the party would leave the government coalition.

Vilhelmsen called a meeting this morning after she was unable to obtain a consensus in her party on agreeing to the government’s pending DONG/ Goldman Sachs agreement, which is set to be decided on in parliament later today.

“It’s been a dramatic 24 hours. I must admit that there has been disagreement in the party, at a national level and in the parliament group,” Vilhelmsen said at the press conference at Christiansborg. “I couldn’t gather the party.”

...

http://cphpost.dk/news/sf-leaves-government-vilhelmsen-steps-down.8476.html

 

[Tycho Brahe]

Danish socialist party to leave government

Denmark's Socialist People's Party (SF) will leave the government, television channel TV2 News said on Thursday.

The resignation follows disagreement over a planned sale of a quarter of state-owned utility DONG Energy to a group of investors lead by Goldman Sachs.

The resignation does not necessarily mean the government, which also consists of the Social Liberal Party and Prime Minister Helle Thorning-Schmidt's Social Democrats, will step down.

http://in.reuters.com/article/2014/01/30/denmark-socialists-idINL5N0L347Y20140130

 

[Angst]

uhm. holy crap? i think that's proper here

 

[metatron]

You're very fond of Dong? After years of massive investment fails and the borderline corruption scandal of 2012, Dong is one of the things about Denmark you're proud to boast about?

Hi, your neighbor to the south here. *wave*

Let me tell you: It's way, way, waaay better to have your government mess with your electricity than to have (equally corrupt) quasi-monopolistic private energy companies (backed by Swiss and American banks) mess with your government.
The latter will be just as dysfunctional and also extort a few billions from you here and there whenever they are bored, and expend the resulting profit on buying Bulgaria and/or pitching back money to said banks.
You'll also find your government to grow increasingly unresponsive, to, you know, democracy, regarding anything related to energy.

If you're up for that, feel free, have at it.

 

[caketastydelish]

Engineering majors are mad about this news because now their making fun of business majors is less credible than ever.

 

[Hygro]

Engineering majors are mad about this news because now their making fun of business majors is less credible than ever.

You might want to elaborate on that...

 

[caketastydelish]

I've seen many engineering people call business majors 'lazy' and how they won't get a job, etc. Where is their god now?

 

[Farm Boy]

I've seen many engineering people call business majors 'lazy' and how they won't get a job, etc. Where is their god now?

So what? Both groups of people sit around on their rears all day being lazy. It's not like either career trains you to do "real work" besides some outliers. Is this one of those pot/kettle/black instances?

 

[azzaman333]

I've seen many engineering people call business majors 'lazy' and how they won't get a job, etc. Where is their god now?

Business majors are lazy, and in my experience, rather stupid. At least engineers aren't stupid.


No, I am not an engineer.

 

[Hygro]

I've seen many engineering people call business majors 'lazy' and how they won't get a job, etc. Where is their god now?

I'm not sure what you're referencing with regards to this thread.

 

[Traitorfish]

So what? Both groups of people sit around on their rears all day being lazy. It's not like either career trains you to do "real work" besides some outliers. Is this one of those pot/kettle/black instances?

A lot of engineering work requires spending considerable time on building sites, in factories, and the like, and that begins at an undergrad level. It's the blue collar job of white collar jobs.

 

[caketastydelish]

Business majors are lazy, and in my experience, rather stupid. At least engineers aren't stupid.


No, I am not an engineer.

In my experience it's the other way around. No I'm not a business major, and I study network engineering.