Bloomberg News

Danish PM Blindsided as Ministers Quit in Goldman Spat

January 31, 2014

Denmark's Prime Minister Helle Thorning-Schmidt

Helle Thorning-Schmidt, Denmark's prime minister, at the World Economic Forum (WEF) in Davos, Switzerland, on Jan. 24, 2013. Photographer: Jason Alden/Bloomberg

As night turned to day on Jan. 30, Denmark’s biggest newspapers were predicting Prime Minister Helle Thorning-Schmidt’s coalition would survive a dispute over letting Goldman Sachs Group Inc. (GS:US) buy part of Dong Energy A/S.

By 10 a.m., the Socialist People’s Party had quit her minority coalition and Danes were trying to understand how a Wall Street bank could have shaken the political landscape in their Scandinavian haven. Thorning-Schmidt said she will appoint a new Cabinet “soon” to replace the six ministers who walked out over the dispute.

The 48-year-old Social Democrat watched her coalition fall apart yesterday after pushing a $1.5 billion sale of an 18 percent stake in Dong to Goldman. The deal, opposed by 68 percent of Danish voters in a Megafon poll for TV2, dominated headlines after it emerged Goldman would get some veto powers in exchange for its investment. Goldman has said it views the stake as a long-term holding and will support the strategy of the current management.

“Most Danes don’t know the details of this deal,” Peter Kurrild-Klitgaard, a professor of political science at the University of Copenhagen, said by phone. “A great many voters fear Danish politicians are surrendering control of the energy grid. Many think Denmark is selling all of Dong and not just 18 percent.”

Dong Restructuring

Goldman will buy the stake through its European merchant banking unit in a company named New Energy Investment S.a.r.l. Goldman will partner with Denmark’s two largest pension funds, ATP and PFA, which will own 4.9 percent and 1.8 percent, respectively.

Dong is selling shares as part of a restructuring announced in February last year to cut costs, reduce debt and bolster investments in oil and gas exploration, as well as in wind farms. The plan included cutting expenses by 20 percent and selling assets to raise 10 billion kroner ($1.8 billion).

“It’s a good contract,” ATP Chief Executive Officer Carsten Stendevad said in an interview yesterday. “It’s good for all parties. We hope for the sake of Dong that soon our focus can return to the very difficult investment case.”

Tax Compliance

Frank Aaen, a lawmaker at the Red-Green Alliance which helps secure the government its majority in parliament, on Jan. 28 grilled Finance Minister Bjarne Corydon in a hearing that lasted almost four hours. Aaen said Goldman’s plans to hold the Dong stake via units in Luxembourg, Delaware and the Cayman Islands suggest the Wall Street firm will try to avoid its tax obligations.

“Goldman Sachs complies, and will continue to comply, with all applicable tax laws in Denmark, Luxembourg, the United States and other relevant jurisdictions,” Sophie Ramsay, a spokeswoman at Goldman in London, said in an e-mailed response to questions.

“The Cayman and Delaware shareholders of the Luxembourg company are partnerships that broadly represent two buckets of investment capital: the first primarily for non-U.S. investment capital, the second primarily for U.S. investment capital,” she said. “Income is allocated to investors in the partnerships and tax is reportable in accordance with the laws of the ultimate home country, be it in the United States, Denmark or other relevant jurisdictions.”

Goldman Angle

Thousands gathered in front of the parliament on Jan. 29 to voice their opposition to the deal. Though a Facebook group calling itself “Here’s the Revolt” urged Danes to take the streets again today to voice their anger over the deal, voters are likely to shift focus, according to Jens Hoff, a professor of political science at the University of Copenhagen.

“The Goldman angle will be forgotten in a few weeks time,” he said. “What remains will be that the Socialist People’s Party left the government.”

Thorning-Schmidt has been battered in the polls since taking power in 2011. To ward off a recession and deficits, she enacted measures that alienated many core voters.

The government, which now comprises Thorning-Schmidt’s Social Democrats and the Social Liberal Party, has started to means test services including study grants and childcare benefits. It also requires Danes to work longer before retiring. Meanwhile, Danes bear the world’s highest tax burden relative to gross domestic product.

Voter Discontent

In a Jan. 26 poll published by newspaper Berlingske, 55.1 percent of Danes said they’d vote for the opposition bloc led by Lars Loekke Rasmussen’s Liberal Party. That compares with 49.7 percent in the Sept. 15, 2011 general elections.

With her coalition in tatters, Thorning-Schmidt says she doesn’t need to call an election because the Socialist People’s Party will continue to support her government. The next election is due in September 2015 at the latest.

According to a web poll published by Berlingske today, 54 percent of Danes say Thorning-Schmidt has been weakened by the Socialists’ exit. Some 25 percent say her position is unchanged and 12 percent say it has strengthened her. The poll, conducted by Gallup in Denmark, included 1,194 web-based interviews.

Denmark became Scandinavia’s weakest economy after a housing bubble that burst in 2008 triggered a community banking crisis. The country’s biggest lender, Danske Bank A/S (DANSKE), has lost 135,000 clients in the past 16 months and customer satisfaction is the lowest in at least six years, according to pollster Voxmeter.

Consumer Debt

The central bank estimates consumer indebtedness is hurting household demand, and Denmark’s economic growth is lagging behind rates in neighboring Sweden and Norway. Danish GDP will expand 1.6 percent this year, versus 2.3 percent in Sweden. The mainland economy of Norway will expand 3 percent, the Organization for Economic Cooperation and Development estimated in November.

Thorning-Schmidt’s decision to partly privatize a state-owned utility was the last straw for some voters, according to Kurrild-Klitgaard.

“It’s still very strange to Danes to have someone from the outside control energy distribution,” he said. “This was no easy camel to swallow for the socialists. Only 20 years ago they wanted production resources to be nationalized.”

To contact the reporters on this story: Peter Levring in Copenhagen at plevring1@bloomberg.net; Christian Wienberg in Copenhagen at cwienberg@bloomberg.net

To contact the editors responsible for this story: Jonas Bergman at jbergman@bloomberg.net; Tasneem Brogger at tbrogger@bloomberg.net


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