MILAN (Reuters) – Italian defence and aerospace group Leonardo postponed the initial public offering (IPO) of its U.S. electronics unit DRS sending its shares in Milan down more than 10%.

Leonardo, which hoped to use the proceeds from the IPO to cut its debt pile and potential M&A activity, said adverse market conditions had prevented an adequate valuation of the unit.

“The share sale was hit by expectations that the U.S. administration could trim its military spending to focus on its stimulus package for the whole economy,” one source close to the matter told Reuters.

Leonardo shares fell as much as 11% and were down 7.5% by 0844 GMT, making the group the biggest loser on Milan’s blue-chip index.

Leonardo said the decision to postpone the offering was made “notwithstanding investor interest within the price range during the course of the roadshow”.

The IPO of DRS, which counts the U.S. military as a customer, was launched last week.

DRS specialises in naval systems, ground combat mission command and network computing, satellite communications and network infrastructure, avionics and other equipment.

Leonardo, which aimed to complete the listing by the end of March, was offering about 22% of Leonardo DRS on the New York bourse, valuing the stake at up to $702 million.

“DRS remains a core part of Leonardo’s business portfolio and the IPO will potentially be revisited when market conditions are more favourable and a successful IPO at an appropriate valuation for this strategic business can be achieved,” Leonardo said in a statement, adding it would continue to support the unit’s development within the group.

The share sale was meant to provide new financial resources for Leonardo, which saw its net debt increase to 3.3 billion euros last year, from 2.8 billion euros in 2019.

Leonardo was expected to receive all the proceeds from the offering, while DRS intended to keep future profits for growth.

Leonardo bought DRS in 2008 in a deal valuing the U.S. defence company at $5.2 billion, including $1.27 billion in debt, equal to 3.4 billion euros at the time of the acquisition.

Leonardo, formerly Finmeccanica, is one of Europe’s largest defence firms and involved in programmes including the Eurofighter Typhoon combat jet and MBDA missiles.

(Reporting by Cristina Carlevaro and Francesca Landini, editing by Agnieszka Flak and Jason Neely)