UK technology listing highlights struggle for energy sector

Biggest oil and gas initial public offering in three years remains stalled

The UK’s biggest technology listing in almost two years got off to flying start when official trading started this week. Shares in Alfa Financial Software, which develops specialist software for the asset financial industry, surged almost 30 per cent from their issue price, generating a massive windfall for its chairman and chief executive. Contrast that performance with the UK’s biggest oil and gas initial public offering in three years, which remains stuck in the starting blocks. Kuwait Energy, which announced plans to IPO a month ago, said on Wednesday that after a period of “investor education” it was still talking to potential investors about a stock market listing in London — a tacit admission that it had made little progress with its flotation plan. While the success of Alfa Financial might smack of tech exuberance, the struggles of Kuwait Energy show just how bearish investors remain over the outlook for oil prices even after last year’s price rebound and the recent Opec deal to curb output. Founded in 2005, Kuwait Energy has operations Egypt, Iraq, Yemen and Oman. Its main asset is a 60 per cent stake in Block 9, an oilfield in southern Iraq which the company says has almost 700m barrels of proven and probable reserves. The company wants to become the leading independent oil and gas exploration company in the Middle East and north Africa. It currently produces almost 25,000 barrels a day. In what was billed as a key test of investor appetite toward the sector, the company has been trying to sell about $250m of shares to support its growth plans and allow existing investors to reduce their holdings. But investors baulked at the valuation of around $1bn being targeted by the company’s advisers, demanding a lower price, according to people familiar with the IPO process. The differing views on valuation partly reflects the size of the company’s debts, where it operates and the lack of comparable companies listed in London, the people said. In 2016, Kuwait Energy made a net loss of $116m after recording almost $95m of impairment charges. At the end of December net debt stood at $326m. It has been forced to suspend production in the Yemen due to a civil war and because of the way production contracts are structured in Iraq, the company does not have as much leverage to the oil price as London-listed explorers such as Tullow Oil and Cairn Energy. But Kuwait Energy has also proved a hard sell because of uncertainty about the outlook for oil prices — something that will be noted by bankers looking to sell 5 per cent of Saudi Aramco, the giant state-owned oil company, in 2018. While Opec and other big producers recently agreed to extend supply cuts until March 2018, Brent, the international crude marker, has fallen below $50 a barrel as US shale production continues to surge and investors worry about the impact of electric cars on demand. Unless Kuwait Energy can find a cornerstone investor prepared to buy a large chunk of the proposed offering, bankers fear the flotation will be pulled.


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Smart Grid Bulletin February 2019

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