Historic IPO: for those who think in their head

The initial public offering (IPO) of the Lithuanian government controlled energy company Ignitis grupė is currently ongoing. The shares are offered to regional retail investors and global institutional investors.

If the process is successful, the group, which has distributed 27.8% of the shares, will raise up to 585.2 million. EUR. If successful, we would have more than $ 2 billion after the historic initial public offering. Lithuanian energy company listed on the Eur.

This initial public offering is a unique opportunity to invest in the local underdeveloped capital market and for ordinary Lithuanians, most of whom only recognize deposits as an investment, an apartment bought with a loan to rent or even a piece of gold. .

The local capital inflow from said issuer has not yet been seen. Raising more than 1% of a country’s GDP into a treasury is a huge and difficult process in which large teams of financiers and lawyers make sure there are no loose ends before an offer is made to investors, such as a tank. of OPI on the move. Suddenly, someone doomed, like businessman and investor Vidmantas Martikonis (in a separate order after that), would emerge as that brave protester in Tiananmen Square, standing against the tank of the communist regime. Well, you know, that legendary photo. Donate for a lyrical passage about this protester: a little heroism where the money is.

So, getting back to the more mundane things, the lawyers with the financiers before the IPO were careful not to leave any end. With the launch of the IPO, world-class investment bankers have already opened the door to large institutional investors. The IPO has already reached such a scale that our capital market offering could also be of interest to global players.

Not only that, this may be the first time we have overtaken the Estonians, who may be left behind with the IPO of the Enefit Green division of their energy group Eesti Energia.

As the stakes are high, expectations, stakes and efforts are high in processes of this magnitude.

When such a large supply to investors, which has already attracted a lot of interest from institutional investors, its demand may even be sufficient, you don’t need ordinary people with a few hundred or thousand euros. However, the Ministry of Finance has made additional efforts and offered the participation of retail investors, who can receive at least 100 shares each.

Let’s leave all the smartest Wall Street sharks behind for us, we are more interested in the broad community of small and inexperienced investors that we are trying to help capture in this huge flow of information about the IPO process.

And where the stakes are high, so is the effort to work with doctrine.

Unexpectedly, one of the biggest fighters who tried to ignore the Ignitis Group regarding the exchange of ESO and Ignitis Production shares spoke positively to investors. A few hours after the interview announced by VŽ, it became clear that Ignitis grupė had entered into a peace agreement with V. Martikonis, a minority shareholder in his controlled company Ignitis gamyba.

VŽ asked the Bank of Lithuania for clarification on the statements made by VŽ in the interview before concluding the settlement agreement: if there are no signs of market manipulation in these stocks.

“There are two important aspects. The first is that the shares of AB Ignitis grupė are not yet traded on the regulated market, but the Market Abuse Regulation on the disclosure of information already applies when an application for listing of securities is submitted. Therefore, the company already has an obligation to disclose information, all the more so since its bonds are already included in the trading lists, – answered Vaidas Cibas, Head of the Regulated Market Supervision Division of the Bank of Lithuania. – The second – the company, albeit belatedly, responded to the interview. In this episode, we would not see any signs of market manipulation, but we would see the question of whether the material event was not reported late. “

Therefore, we no longer have a source that can help small investors to catch up on the Ignitis Group offering. You will have to depend on someone else.

And something else is hard to find. Most of the experienced experts interviewed by Verslo žinios avoid, cannot or do not know how to critically evaluate this IPO. Like the local capital market, the circle of financial specialists in Lithuania is small. Everyone knows each other and they don’t want anyone to come across critical statements on the street.

At the same time, the CEO of Ignitis Group shares reports on social media about how already on the third day of the IPO there were enough requests from investors to cover the entire offering. Such actions send a signal to the market. For retailers, that the demand for shares is there, for institutions, it is also important to ask for a higher price in their applications, since they will not receive shares.

Therefore, the precept of “those who think in their head” is more relevant.

When considering making an investment, a person should self-assess the risk-return ratio.

Everyone has already heard enough about the potential return these days: dividends, albeit modest, and even the potential for green investments in plants. It is difficult to disagree with these arguments: the EU has taken a strong lead and the Ignitis Group is seizing the opportunity. It remains to wish for success on this path.

Let’s move on to the risks we should start with anyway.

During the investor webinar, Ignitis Group management did not say much about the influence of the state, which will continue to control 72.2% of the shares after the IPO, on dividend policy. During the seminar, it was ensured that the state does not influence the strategic decisions of the company, and the renewed dividend policy has already been approved, announcing growing dividends around 3% per year, investors are clear. The starting point is the 85 million approved. Dividends in euros from the previous year, which indicate a yield of 4-5%.

Is this a sufficient return on the political risk taken?

And this is. The Lithuanian energy sector can only compete with the second-tier pension system in the frequency of various transformations: mergers, splits, mergers, splits, construction of power plants, not construction. Martikonis himself mentioned that political risk was one of the reasons energy sector stocks were so cheap.

Choices on the nose. How will the new managers view the group that is already one-sided and its dividend policy, the existing management?

Recall the disputes over the rescue of the ESO and Ignitis Gamyba shares. Only through disputes and litigation with Ignitis Group were investors able to beat the higher purchase price of ESO and Ignitis Gamyba shares. Having done this, the group now travels to offer shares to international investors. Well, maybe they assessed that risk themselves. And the local community knows this story well. We just remind you.

And where else are the risks on a more global scale? With the IPO at a time when the global rally in stocks has lost momentum and is already falling. This is the favorable last minute to offer shares to investors. But is this the last good minute to invest?

Yes, it is true that companies in the so-called “public services” sector are among the most stable during stock market crises. Ignitis grupė can only be considered a partial safe haven. In this case, the question for the investor is, if there will be a massive sell-off in the markets, will I be able to cope and keep these stocks when the turbulence hits.

Don’t get me wrong: In VŽ’s view, the Ignitis Group IPO is a long-awaited and necessary event as the state provides its citizens with the opportunity to invest and invest in their country’s economy. This is a step in the right direction.

We simply feel obligated to warn of the risks. You will have to self-evaluate them, “thinking with your own head”, as always.

Just don’t ask for advice on whether to buy these stocks from the dealers themselves.

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