KNDS IPO: Auditor Relents After Qatar Probe as State Control Keeps Investors at Bay

Europe's largest defence IPO gets PwC sign-off after Qatar probe, but a 20% free float and state dominance raise liquidity and governance concerns despite strong revenue and order growth.

The path to a summer listing for Europe’s biggest defence IPO in years has just cleared one obstacle, only to expose another. KNDS, the Franco-German tank maker behind the Leopard and Leclerc, got the green light from PwC to sign off its 2025 financial statements after a compliance investigation into a 2013 arms deal with Qatar found no wrongdoing. The probe, conducted by law firm Freshfields both internally and externally, covered the delivery of Leopard tanks and PzH 2000 howitzers to Doha. With that hurdle removed, the company can finalise its securities prospectus and press ahead with a dual listing in Frankfurt and Paris.

Yet the bigger challenge for the underwriters — Bank of America, Deutsche Bank, Goldman Sachs and Société Générale — is the ownership structure they will have to sell. Germany’s KfW bank plans to buy 40% of the shares at the offer price, matching the stake already held by France. That leaves a free float of just 20%, worth roughly €3.6bn to €4bn at the newly trimmed valuation range of €18bn to €20bn. The original target of €25bn has been abandoned. Analysts argue that minority shareholders will have almost no influence over corporate decisions with 80% of equity in state hands, and that thin trading liquidity could hamper index inclusion. Both governments intend to trim their holdings to 30% each within two to three years, but investors will want to see credible commitment before paying up.

Operationally, KNDS is firing on all cylinders. Revenue rose 15.9% to €4.4bn last year, while EBIT hit €661m, lifting margins from 13.2% to 15.0%. Orders surged to €13.5bn, swelling the backlog to €33.1bn by year-end. The ammunition division grew nearly 25%, a direct reflection of Europe’s rearmament push. Most recently, the British Army ordered 72 RCH 155 self-propelled howitzers through the OCCAR procurement agency, a contract worth close to £1bn, with deliveries scheduled from 2028.

Turning that pipeline into revenue requires factory space, and KNDS is scrambling to find it. Chief executive Jean-Paul Alary confirmed late last month that talks are underway with Volkswagen and Mercedes-Benz to convert former auto plants into defence production sites. The most advanced discussions involve a Mercedes facility in Ludwigsfelde, Brandenburg, where Boxer wheeled armoured vehicles could be assembled alongside the Sprinter van. VW boss Oliver Blume called negotiations over a plant in Osnabrück “promising”.

A separate ownership wrinkle emerged just before the IPO. The Czech CSG Group confirmed it is in talks to buy shares from the German family shareholders of the former Krauss-Maffei Wegmann. People familiar with the matter say the family members are prioritising the stock-market listing and a government stake for Berlin, making a CSG entry unlikely for now.

KNDS supervisory board chair Tom Enders has publicly pushed for a speedier state retreat. But until the prospectus lands with binding lock-up periods and the exact shareholder structure, investors will struggle to gauge how much of the valuation discount is justified by the governance constraints — and how much remains an opportunity for those willing to accept the state’s heavy hand.