Doing the Devil’s work?


January 31, 2014

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With a population of just over five and a half million, many may be surprised to hear that one of the most egalitarian societies in the world has recently developed a cult-like global status.

Much of this follows the successes of a jumper-clad detective and a fictional prime minister with a messy private life.

Evidently global television is a powerful thing. And as a result, fictional crime dramas have become a prime creative export for a country that prides itself on maintaining a strong work/life balance and high healthcare and living standards.

However, having struggled with a property bubble that burst at the height of the financial crisis, this week the Danish government has once again been working overtime.

And this effort has not just been focused on enabling the country to hit its forthcoming EU deficit targets – contrary to what many may think.

Since the recent energy investment decision – of which the Danish government have been part – is just as likely to have a significant impact on economic growth as any debt deficit plan.

We’re talking of course, about Goldman Sach’s audacious bid for a 19% equity stake in Dong Energy – a bold move by the Wall Street bank that has caused significant domestic concern.

So much so in fact, that it has brought the Danish coalition government to its knees – with the Socialist People’s Party leaving the government over the deal.

The accompanying public furore leads one to inevitably conclude that this whole affair is a real cause for concern. But should it?

For, while the $1.5bn investment – confirmed yesterday – will present many challenges for the Danish utility, the reality is that the capital is necessary if the business is to boost its balance sheet and continue to invest in offshore wind.

And while that capital could have come from what is thought to have been a possible portfolio of domestic sources – including PensionDanmark – there’s a distinct set of advantages for the utility to secure fresh capital from overseas.

Indeed, with construction within the European market expected to dip over the next twelve to eighteen months and with new international markets already opening up, it helps that Goldman has some considerable capabilities in addressing the capital markets that the Danish government simply does not.

That’s especially important when you consider that the Danish government previously pulled back from a planned IPO of the company in 2008, when the financial markets took a tumble.

And that if it’s looking to pursue that route again, having Goldman as an investment partner positions them very well for a future listing.

Now, critics would argue that the U.S. investment bank has done rather too well out of the deal; if Dong is to change its chief executive or finance director, make a large acquisition or issue new shares, it will now need the approval of Goldman first – special veto privileges not afforded to other shareholders.

However, whilst the bank undoubtedly falls short of chief executive Lloyd Blankfein’s claim that it does ‘God’s work’, that doesn’t mean it does the Devil’s either.

All in all, the Goldman-Dong deal is interesting on a number of levels.

Yes, it brings fresh international capital to the firm following a series of failed natural gas bets, and yes, it has the potential to open up new markets and territories overseas.

However, what’s in no doubt is that the shareholder agreement ties the Danish government and Goldman tightly together – providing a catalyst for future capital and investment that, in an instant, shifts the firm onto the international investment stage.

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