IPO to value Dong at $15bn feeds currency hedge speculative bets

Bloomberg

What looks set to become Denmark’s biggest initial public offering in more than a decade may add to pressure on the krone at a time when the exchange rate is already testing levels last seen during a 2015 speculative attack.
With 15 percent of Dong Energy A/S slated to be sold to the public next month, the potential demand from offshore investors could have a palpable effect on Denmark’s exchange rate, according to Danske Bank A/S, which is already advising pension fund clients to hedge for krone strength in the forward market. And with the threat of market disruptions rife ahead of Britain’s June 23 vote on European Union membership, there’s likely to be plenty of demand for assets sold from safe-haven economies, Danske predicts.
“It’s an interesting situation because this IPO comes at a time when there’s upward pressure on the krone and also at a time that’s very close to the Brexit referendum,” Jens Naervig Pedersen, a senior analyst at Danske in Copenhagen, said by phone. “The IPO will provide a new way to buy krone assets at a time when the krone is already strong.”
“We have seen the krone react to IPOs in the past when foreigners have bought shares, so it’s something that could have an effect,” he said.
Denmark’s central bank uses monetary policy to defend the krone’s peg to the euro. It successfully fought back a speculative attack early last year when Switzerland’s decision to abandon its euro ties fanned bets that other countries with similar currency regimes may follow.
The krone is now trading close to levels reached early last year at the height of the Danish peg crisis, prompting conjecture the central bank may soon act to stamp out any threats to its regime.