Why Europe’s biggest IPO this year is still a sign of failure

July 2, 2014, 10:55 AM UTC

Europe’s biggest initial public offering this year started conditional on the Amsterdam stock exchange Wednesday, but you’d be dreaming if you thought that this was a signal that growth or inventiveness had suddenly returned.

NN NV sold €1.54 billion ($2.1 billion) of stock to investors Tuesday, bumping up the size of its offer by 10% to accommodate solid investor demand. That gave it an equity value of €7 billion.

But NN is no no Alibaba or GoPro, wooing investors with the excitement of limitless growth in China, or the excitement of fancy new technology: it’s the insurance arm of Dutch financial services giant  ING Group NV (fortune-stock symbol=”ING”], which was ordered by the E.U. to sell NN by the end of 2016 as a condition for receiving a bailout from the Dutch state after its business model blew up the financial crisis.

In that respect, it’s a lot like Lloyds Banking Group PLC’s (LYG) IPO of TSB, in June, which raised around 500 million pounds ($850 million). Lloyds, too, had to be rescued by its government in 2008, and has to sell all of TSB by the end of 2015.

It’s also a bit like the 51% sale of trade credit insurance company Coface by the French bank Natixis last week for €832 million–although Natixis’ move was a voluntary effort to streamline its corporate structure in a response to escape increasingly complex regulation.

The best that can be said about these deals is that they reflect progress in cleaning up the mess that was Europe’s financial sector in the immediate aftermath of the crisis. If the IPO market is a barometer of market sentiment, then this reflects at least the hope that the worst is finally over.

By the same token, Germany’s largest deal this year was an exit by the private equity companies from a maker of roof tiles that they took over in a 2009 debt restructuring. Hardly a “sky’s-the-limit” growth play.

Sellers have needed to leave plenty on the table for investors to get their stock shifted. Lloyds sold the TSB shares at nearly 20% below their book value, meaning that the first reward investors could hope for is that the assets would actually turn out to be worth what Lloyds said they were worth.

In NN’s case, the discount is even bigger: the €7 billion valuation is less than half the book value in the company’s 2013 accounts.

There’s a reason for this–both disposals are being staggered to make it easier for the market to digest them, and both Lloyds and ING will find it easier to sell subsequent tranches of shares if the first round of investors can be seen to do well out of them.

In fairness, there’s no point in pretending that European finance is high-growth any more, with trainloads of heavier regulation coming down the track. Both TSB and NN have been sold as income plays rather than growth plays: NN’s dividend yield will be around 5%–more than twice the payout on a 10-year Dutch government bond.

Real growth IPOs, by contrast, are still struggling in Europe. Budget airline Wizzair and U.K. retailer Fat Face both pulled IPOs earlier this spring, and Shelf Drilling, a supplier of offshore oil drilling equipment and services, also postponed a planned $500 million offering Wednesday, citing “challenging public market conditions”.