Neste's Eu3.8bn IPO rockets 8% on Helsinki market debut

Few were surprised last Friday (April 15) when Neste Oil's IPO was priced at the top of a raised price range, valuing the company at Eu3.8bn.

The price tag for the Finnish oil refiner was Eu500m more than envisaged by the deal's original valuation, and about Eu1.8bn more than foreseen by its owner, the Finnish energy group Fortum, which span it off.

Neste's shares jumped on Monday when they made their debut in Helsinki, hitting a high of Eu16.50 on the day, 10% above the IPO price, though they fell back to close 7.87% up at Eu16.18.

The shares continued to rise on Tuesday, Wednesday and yesterday (Thursday), when they reached a closing price of Eu17.27, up 15.1% on the offer price.

For lead managers ABN Amro, Merrill Lynch, Morgan Stanley and Nordea, Neste's IPO, which closed about 20 times covered, had always looked a winner, with strong interest shown in the company from the outset.

The decision to increase the price range from Eu11-Eu13 to Eu13-Eu15 was still a surprise, mainly because a price range has not been increased in the European market for over five years.

The last example was the IPO of Lastminute.com, the UK internet travel agent, just before the tech boom peaked in March 2000.

The final pricing of Eu15 means the 38.4m shares, equal to 15% of. Neste's share capital, raised Eu576.6m for Fortum. The remaining 85% of the Finnish refiner's shares were given out on a pro rata basis to shareholders of Fortum.

However, this did not stop existing Fortum shareholders buying more. Bankers working on the deal said that many shareholders were keen to increase their holdings in Neste through the IPO.

Finnish domestic investors were enthusiastic, buying about 13% of the shares on top of the 10% or so that they received through the pro rata allocations to Fortum shareholders.

Bankers working on the deal attributed much of its success to Neste's unique equity story and its scarcity value. As a refining company situated close to Europe's largest oil producer, Russia, the firm offered exposure to the oil sector and particularly the refining industry.

With high oil prices, production facilities have become increasingly stretched as producers attempt to raise supply to meet demand, a difficult task since most facilities are old.

Neste has some of the most modern refining facilities in Europe and its own shipping fleet, so investors believed it was ideally placed to profit.

The IPO could also presage a flow of refining IPOs from Russia, where several firms are reported to be planning offerings to take advantage of the market's enthusiasm for the sector.