A new type of IPO has arrived from across the Atlantic designed to attract investors on the back of buying stock for a steady income rather than in the hope that it will soar in value. Norwegian yellow pages group Findexa, which is seeking a listing on the Oslo Stock Exchange, looks set to be Europe’s first high yield dividend share offering which offers a yield advantage to investors by stapling equity and debt together to offer a combined dividend and interest payment.
Findexa hopes to raise NKr3.5bn. Shares in the group are to be offered at between NKr30 and NKr40 apiece, valuing the equity of the company at between NKr5.6bn and NKr6.6bn. Proceeds from the primary share issue will be used to pay down some of the company’s NKr3.5bn debt. The offer will consist of a combination of primary shares and a secondary sale from Texas Pacific Group which acquired the company from Norwegian telecommunications operator Telenor for NKr5.8bn in 2001.
This type of income depositary security (IDS) has been gathering pace in the US and now looks set to make its mark in Europe. Companies suitable for this type of IPO need to be in stable, cash-generative sectors to attain the high dividend levels promised.
Peter Anderson, corporate partner at SJ Berwin, says: “It is interesting there is this new mechanism in the market. The point about this company is that it has a very strong revenue stream and the IPO is offering a tax efficient structure.”
The characteristics of Findexa made it suitable for this type of transaction. Its revenues and cash flows are robust and predictable. And the fact that it operates in Norway, a mature directories market also stands in its favour.
The company’s dividend policy will be to pay all its available distributable cash after it has retained what it needs to run the business. The main issue is how to structure the security to ensure a sufficient cash return to investors and how sustainable the high yield will be. Findexa’s IPO structure enables the efficient delivery of that policy.
This type of security was developed in the first instance in Canada and originated from a similar business – the Yellow Pages Income Fund. The structure Findexa is using is an adaptation of the already established income deposit security (IDS). The main difference is an IDS is two pieces of paper – a piece of debt paper and a piece of equity paper. Findexa will combine the two to issue individual shares.