Tankmaker KNDS pauses IPO citing tough defence market conditions

July 1 (Reuters) - Franco-German defence group KNDS said on Wednesday it has put its plans to list on hold until market conditions improve, as pressure builds up on defence sector stocks and their valuations.

Europe's defence stocks and new listings rallied after Russia's 2022 invasion of Ukraine and a shift in U.S. foreign policy under President Donald Trump drove up defence investment by European governments. That rally has since cooled.

KNDS said last month it planned to list shares in Frankfurt and Paris. A source told Reuters that the maker of the Leopard 2 tank and Caesar howitzer was likely to be valued at around €15 billion ($17.07 billion) in the IPO.

The Financial Times, however, reported on Tuesday that KNDS is struggling to convince investors to back its planned IPO at a valuation of over €12 billion, with some investors telling the firm that it could be worth less.

Its key German family shareholder, however, made it clear it will not proceed with an IPO at a valuation below €12.5 billion, the FT report said.

The firm didn't immediately respond to a Reuters request for comment, sent outside regular business hours, seeking further details on its decision to call off the IPO.

"KNDS and its shareholders will continue to monitor the capital markets conditions closely and stand ready to resume the IPO process as soon as market conditions allow," it said in its statement.

The company had initially planned to sell 20% of its share capital in the IPO, it said.

KNDS is owned through a 50-50 split between the French government and the German family owners of former Krauss-Maffei Wegmann (KMW). KMW was merged with France's Nexter into KNDS.

($1 = 0.8789 euros)

(Reporting by Kanjyik Ghosh in Barcelona; Editing by Chris Reese and Vijay Kishore)