New Century Shipbuilding scraps IPO on eve of pricing

China-based New Century Shipbuilding has cancelled its Singapore initial public offering, which was seeking to raise up to S$666.4 million ($484 million) and had been due to price following the US close on Tuesday. The deal, which was to have been the largest Singapore IPO this year, had already been downsized to less than half the original size because of the deteriorating market environment, but sources said the cancellation was not due to market conditions.

Indeed, on Monday this week, joint bookrunners Morgan Stanley and UBS went out with a message to investors that the deal was fully covered at the reduced size. They offered no explanation for the withdrawal of the deal and nor did the company. In a brief announcement filed with the Singapore Exchange, New Century said only that it had decided not to go ahead with its planned IPO "at this time" and added that it "intends to review the situation and will consider joining the [Singapore Exchange] at an appropriate time in the near future".

Both are standard lines when deals are being pulled for whatever reason. However, according to yesterday's The Business Times in Singapore, there was nothing standard about the withdrawal of this deal. The newspaper reported that New Century Shipbuilding, which focuses on the bulk and tanker segments of the market, had been forced to cancel the deal because of a complaint to the stock exchange that its listing prospectus contained "material inaccuracies". Quoting unnamed sources, it said the company had neglected to mention that contracts to build two bulk carriers for Sino Noble, worth S$180 million and listed as part of the company's outstanding order book, were in fact cancelled late last year. In addition, the paper said, the company also failed to disclose that Sino Noble has taken New Century to court to claim back the payments it has made for the two new ships thus far.

The company didn't respond to the report yesterday and Morgan Stanley and UBS both declined to comment. However, the fact that investors were told that the withdrawal of the deal was not due to market conditions and that the book was covered, suggest that The Business Times report has merit. The newspaper said arbitration proceedings against one of New Century's shipyards in China, that was to have handled the building of the two ships, commenced on March 18.

New Century Shipbuilding initially planned to sell 30% of its enlarged share capital in the form of 1.464 billion shares. At a price between S$0.98 and S$1.19 per share, this would have allowed it to raise between S$1.43 billion and S$1.74 billion ($1.04 billion to $1.27 billion). The price range translated into a 2010 price-to-earnings multiple of 7 to 8.5, which represented a sizeable discount versus fellow Chinese shipbuilder Yangzijiang Shipbuilding Holdings, which is also listed in Singapore and traded at a 2010 P/E multiple of about 12.4 when New Century kicked off its roadshow on April 22.

However, on Friday evening last week, the company issued a new prospectus that showed the number of shares on offer had been reduced by 62% to 560 million, while the price range had been left unchanged. The decline in net proceeds for the company would have been slightly less, however, as the reduced deal was made up entirely of primary shares. In the initial deal, only 67% of the shares were new. 

Even at the reduced size, the deal would have been the largest IPO in Singapore since CapitaMalls Asia's $1.78 billion float in November last year.

Syndicate analysts had argued that New Century was a significantly stronger company than Yangzijiang, both in terms of market positioning and in terms of its earnings and returns. It also has an order book that is almost double the size in terms of deadweight tonnes to that of its Chinese rival and, according to the prospectus, it was able to continue to grow its revenues through the financial crisis even as global shipping slowed significantly and many ship operators were forced to cancel orders for new vessels.