UPDATE 1-German defence supplier Hensoldt files for Frankfurt stock market listing

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By Arno Schuetze and Abhinav Ramnarayan

FRANKFURT, Sept 8 (Reuters) – German defence supplier Hensoldt has filed for a Frankfurt stock market listing later this month, as the private equity-owned company seeks to raise funds for growth and to strengthen its balance sheet.

The deal is expected to value the former Airbus unit, which buyout group KKR bought in 2016, at 2.5-3 billion euros ($3-3.5 billion), including debt, people close to the matter said.

New and existing shares worth 20-30% of the company are expected to be listed on the stock exchange, the people said, while the company declined to comment on the size and valuation of the listing.

Reuters earlier reported the impending IPO.

Market turbulence at the beginning of the COVID-19 pandemic led to a delay in the offering, originally planned for spring, but stock markets have recovered and Germany’s blue-chip index is back at levels recorded in late 2019.

With COVID-19 related social distancing rules, KKR is using Hensoldt drones to show investors production sites at the defence supplier and at other portfolio companies, a person close to the matter said.

KKR bought Airbus’s defence electronics business for 1.1 billion euros in 2016 and rebranded it Hensoldt, naming it after a 19th-century German maker of binoculars and telescopes.

The German government, which is one of the group’s major customers, holds a “golden share” in the company.

Hensoldt makes military sensors, electronic warfare equipment, avionics and optronics, with 16% of revenues coming from non-defence markets.

This year, Hensoldt expects to post adjusted earnings before interest, tax, depreciation and amortization of about 207 million euros on revenues of 1.15 billion.

Next year, Hensoldt expects revenues of 1.4-1.6 billion euros. Its 2020 and 2021 adjusted EBITDA margin is expected to slightly decline to around 18% from 19.3% seen last year due to ramp-up costs in early stages of major projects, before recovering to 2019 levels, finance head Axel Salzmann said.

The company this year won contracts such as a 1.4 billion euros order to jointly develop and produce a new active electronically scanned array for the German and Spanish Eurofighter fleet.

Hensoldt competes with groups such as Ultra Electronics and Mercury Systems, which trade at 10.9 and 18.7 times their expected core earnings.

The company, which employs roughly 5,500 staff, had 762 million euros in net debt as of end-2019.

Its high-tech cameras are used in products including Tornado fighter jets that fly surveillance missions over Syria and Iraq. It also supplies radar for Eurofighter jets and periscopes for submarines and Leopard and Puma tanks.

In addition, the company makes identification systems for combat jets, night vision devices, radar for civil air traffic control and systems for civil and military efforts to counter drones.

Bank of America, JP Morgan, Deutsche Bank and KKR Capital Markets are organising the flotation with the help of Citigroup, Commerzbank, UniCredit and Crédit Agricole. ($1 = 0.8463 euros) (Additional reporting by Alexander Hübner, editing by Ed Osmond)

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