Goldman bullish on Dong Energy

The ‘giant vampire squid, wrapped around the face of humanity’, as it was memorably, and perhaps unfairly, described by Rolling Stone magazine, isn’t known for its poor investment decisions

So Goldman Sachs’ $1.46billion investment in Danish utility and leading offshore wind developer, Dong Energy, won’t have been taken lightly.

Goldman was joined in its investment by two Danish Pension funds, Arbejdsmarkedets Tillægspension (ATP) and Pension Forsikringsaktieselskab (PFA), who will top up the investment by $401m and $146m, respectively. In total the investment will land the three investors with a combined 26% stake in the state-owned firm.

For Goldman, the decision comes hot on the heels of a number of renewable energy investments, largely in the emerging markets, in recent months.

In May, the firm committed to investing $487million over the next five years in Japanese renewable projects, whilst also taking stakes in Indian renewable assets worth $135million.

On that basis alone, it is unlikely that this will be the last major play that Goldman Sachs will make in the global renewable energy field in the coming months.

For Dong, the decision marks the first successful step on a road to strengthening its balance sheet – a strategy driven by CEO Henrik Poulsen.

It’s a move, unfortunately, motivated by necessity – Dong has $6.6billion worth of debt, largely rated BBB by the major agencies. To not only de-risk the liability held by the Danish state, but also to move the firm towards an eventual initial public offering before 2017, Poulsen needs to prove that the business is developing investment grade assets, and can attract the interest of the markets.

It’s essentially why attracting the interest of the largely conservative Goldman Sachs is a coup that should strengthen his position within the firm.

And whilst committing Dong to maintain its oil and gas interests, Poulsen is ensuing that he can effectively hedge against any future storms the offshore wind sector may see.

All in all, smart management from the newish man at the top.