Masterskill IPO draws strong interest despite deteriorating markets

Malaysia's largest private-sector operator of nursing schools, Masterskill Education Group, has raised M$779 million ($243 million) in Malaysia's largest initial public offering so far this year. In completing the deal, Masterskill has shrugged off the deteriorating market conditions and rising risk awareness that have forced several other IPO candidates to either cancel or downsize this week.

In sharp contrast to those war stories, Masterskill attracted a strong book of international investors that included specialist education funds and global funds as well as sovereign wealth funds, according to a source. The overall deal was more than five times covered, which allowed the upsize option to be exercised in full, increasing the final deal size to 50% of the company from a base size of 40%. It also enabled the company to fix the price at the top of the M$3.00 to M$3.80 offering range.

People close to the deal said the interest was primarily due to the sector, with both education and healthcare being hot topics among investors. In fact, this was the largest IPO in the education sector in Asia ever, which would have helped attract the specialist funds, they said. But Masterskill also offered a fairly unique combination of a competitive yield and high growth opportunities. Together with the fact that Malaysia is traditionally a low-beta market, that would have gone down well in the current market environment, which has seen a sharp rise in volatility in the past week. The fact that the Malaysian ringgit is on an upward trend against the US dollar wouldn't have hurt either.

That said, the level of interest was still somewhat surprising since the IPO was in fact a partial exit by venture capital firm Crescent Point Capital, which invested in Masterskill in 2006 as part of a leveraged buyout. Crescent, which is also known for its investment in Air Asia, reduced its stake in the company to 23.7% from 52.6% before the IPO, which means that there will no longer be any one sponsor or large corporation behind Masterskill, which will continue to be run by its entrepreneurial founder Dato S'ri Edmund Santhara.

The company sold 164 million shares as part of the base deal and another 41 million shares through the exercise of the upsize option. Only 25% of the base deal was made up of new shares, while the upsize option consisted entirely of secondary shares, meaning the company raised only $49 million of fresh capital that can be put to work to expand the business.

Based on the IPO price of M$3.80, the company offered a projected yield of 4.6% for 2010 and was valued at a price-to-earnings multiple of 13 times, also for this year. The latter was in line with Singapore-listed Raffle's Education, which was viewed as one of the closest comparables. The fact that Masterskill focuses exclusively on training and education for the healthcare sector means that it doesn't have any direct comps, however.

The retail tranche was upsized slightly too by about 16% from an initial target of 15% following large amounts of orders particularly from the ethnic Malay community. The rest went to institutional investors with no breakdown between international and domestic accounts. The total institutional demand was said to have been split evenly three-ways between Malaysia, the rest of Asia and Europe and, according to a source, the deal attracted more than 150 institutional investors.

The offering was jointly arranged by CIMB and Goldman Sachs.