DUESSELDORF/FRANKFURT The owners of German chemical company Evonik RAGES.UL are set to scrap plans for what could have been Europe's biggest initial public offering in more than a year, four people familiar with the matter said on Sunday.
A string of share flotations across the globe have been blown off course by the volatility of financial markets in recent months, arising from fears the euro zone debt crisis will drag down economic growth.
The sources said the RAG Foundation was likely to cancel plans on Monday to float Evonik at the end of June, which would be the second time it has pulled plans for an IPO.
Earlier this month, motor sport racing company Formula One delayed a Singapore IPO worth up to $3 billion, and London luxury jeweler Graff Diamonds recently ditched its $1 billion IPO. [ID:nL4E8GU83J] [ID:nL4E8GU83J]
Investors also have been shaken by social networking site Facebook's (FB.O) recent IPO, which was marred by technical issues and over-ambitious pricing.
RAG, a state-owned trust that will bear the liabilities of Germany's wound-down coal mines, once hoped Evonik would be valued at 15 billion euros ($18.9 billion) in an IPO, after subtracting 1 billion euros in net debt, sources have said.
That valuation assumed a multiple of at least 6.5 times earnings before interest, tax, depreciation and amortization and an IPO discount of about 10 percent, which investors have made clear is more than they are willing to pay.
RAG, which owns 75 percent of Evonik, declined to comment. A spokeswoman for CVC CVC.UL, which holds the remaining 25 percent, said only that the private equity firm was in agreement with RAG in its assessment of the situation.
The two companies had planned to float about 30 percent of Evonik.
RETHINKING THE IPO
RAG's board of trustees met with investment bankers from Deutsche Bank (DBKGn.DE) and Goldman Sachs (GS.N), who were leading the IPO preparations, at Duesseldorf airport on Friday, according to the sources.
At the meeting, the board learned that the banks had won what amounted to insufficient commitments to the IPO from investors and that there was still no clarity on price and volume, the sources said.
"At a time when only the buyers can dictate a price, you have to re-think whether an IPO makes sense," a banker whose bank is involved in the deal said.
Eventually, CVC will need a way to exit its investment, however, which means another attempt at an IPO cannot be ruled out, a financial source said.
RAG's board of trustees sees the failure of the IPO as a setback for RAG and a hit to Evonik's reputation, one of the sources said. It is due to make a final decision on Monday afternoon, a day after a cliffhanger election in Greece that could lead to the country's exit from the euro, roiling markets.
Growing jitters over Europe's economy may also be dimming prospects for other IPOs that have been expected in Germany this year, such as the flotation of Rheinmetall's (RHMG.DE) auto parts business KSPG and insurer Talanx HDIVGT.UL.
"Time is running out and there is no scenario where everything will be super-good, super-fast. There will be no fast solution in Greece, and uncertainty has even risen on Spain and Italy," one banker said.
($1 = 0.7921 euros)
(Writing by Maria Sheahan, editing by Jane Baird)