Activity in the equity capital markets is a lot quieter than in the past couple of years at this time, but that doesn’t mean there is nothing on offer for investors. Last week saw a couple of Korean block trades and a convertible bond that together raised $1 billion, and four issuers announced rights offerings that are targeting a combined $3.6 billion over the next couple of months.
And, yesterday, bankers started pre-marketing for the upcoming IPO of HKT Trust, the telecommunications business that PCCW is spinning off. As reported earlier, the trust is aiming to reach a minimum market capitalisation of HK$28.6 billion ($3.7 billion) by selling between 25% and 36.7% of the share capital to investors (or up to 40% including the greenshoe). Based on the company’s cashflow projections for 2012 and a maximum 9% dividend yield, the top end of that range implies a deal size of $1.35 billion.
If realised, HKT Trust will be the largest Hong Kong IPO since Citic Securities raised $1.7 billion at the end of September and only the second Hong Kong listing to raise more than $1 billion since global equity markets started to sell off in early August. Sany Heavy Industry and XCMG Construction Machinery were in the running to raise up to $3.3 billion and $1.2 billion respectively, but both cancelled their offerings last month. A definitive timetable has yet to be set, but tentatively HKT Trust will kick off a formal roadshow in two weeks, on November 9. The current plan is to list on November 29.
While the start of pre-marketing revealed little news about the structure of the deal, it was confirmed yesterday that HSBC and Standard Chartered will join CICC, Deutsche Bank and Goldman Sachs as joint global coordinators for the offering. DBS and J.P. Morgan are also part of the line-up as joint bookrunners.
And HKT Trust is not the only listing candidate that is being pre-marketed. On Monday, bankers started to educate investors about Zhong Da Mining, a Chinese iron ore producer that is also seeking a listing on the Hong Kong stock exchange. The company, which operates five mines and is the largest iron ore producer in the Hebei and Liaoning provinces, is aiming to raise about $225 million to $275 million with the help of CCB, HSBC and UBS. According to a source, no timetable has been set yet, but if the feedback is positive and the markets hold up, Zhong Da may start the roadshow next Monday.
Outside Hong Kong, pre-marketing is also underway for Malaysia’s Pavilion Real Estate Investment Trust, which is seeking a listing on Bursa Malaysia. Based on the indicated offering price, the retail property-focused Reit could raise up to M$695.2 million ($221 million) and become the fourth largest listing in Malaysia this year. CIMB, Credit Suisse, Maybank and QNB Capital are joint global coordinators for the offering. The first three are also joint bookrunners together with Deutsche Bank.
At the time of listing, Pavilion Reit will own one seven-storey shopping mall and a 20-storey office tower that are both part of a mixed-use commercial development — the Pavilion Kuala Lumpur project — which is located in KL’s Golden Triangle commercial district. The award-winning shopping mall is by far the most valuable of the two, accounting for about 96% of the total asset value.
The properties were completed in 2007 and will be acquired by the Reit at a price of M$3.31 billion, which represents a 6.47% discount to the appraised value. Based on the property valuation at the end of June, Pavilion will be the second largest Reit in Malaysia after Sunway Reit, and the largest in terms of pure retail exposure, according to its draft prospectus. Aside from its two existing properties, Pavilion also has a right of first refusal to a number of retail properties in Malaysia, which are expected to drive its future growth.
Pavilion is backed by Malaysian businessman Lim Siew Choon and his wife Tan Kewi Yong as well as the Qatar Investment Authority. Following the IPO, Lim and Tan will jointly own 37.6% of the Reit, while QIA subsidiary Qatar Holding will own 36.1%. The remaining 26.3% will be sold to investors in the form of 790 million units.
Some 95.6% of the units will be offered to institutional investors, with the rest earmarked for retail investors, employees, directors and tenants of the two properties. According to a draft prospectus published last Friday, the maximum offering price will be M$0.88 per unit, which represents a 6.4% discount to the pro forma net asset value of M$0.94 per unit post listing.
Like HKT Trust, Pavilion Reit is a relatively defensive vehicle that is expected to attract investors partly because of its high and stable dividends. Based on the maximum offering price and a commitment to pay out 100% of its distributable income, Pavilion Reit is offering a 2012 dividend yield of 6.5%. After 2012, the Reit will pass on at least 90% of distributable income to the unitholders.
However, according to the draft prospectus, the Reit is also offering growth opportunities, both through potential acquisitions and through increases of rents and leasable areas at its existing properties. With a debt-to-asset ratio of just 20.1% at the time of listing, Pavilion Reit can borrow almost M$1.1 billion to fund future acquisitions before running into the regulatory limit of 50%.
The institutional offering is expected to launch on November 11 and remain open until November 23 when the final price is also due to be fixed. The trading debut is scheduled for December 7.
Other potential deals in the pipeline include New China Life Insurance’s A- and H-share IPO, which is expected to be reviewed by the Hong Kong listing committee on Thursday. The dual listing is expected to raise $3 billion to $4 billion, which could prove a real test in the current market environment. That said, the Chinese insurer is expected to follow the example of Citic Securities, which placed about half the deal with cornerstone investors before launch. Also, it might not launch the deal straight away, sources say, even if New China Life receives the go ahead from the listing committee.
On Friday last week, Hong Kong-listed Xinyi Glass Holdings also announced that it will seek shareholders approval for the proposed spin-off of its solar glass subsidiary at an extraordinary general meeting on November 9 and said it expects to complete a global offering and separate listing in Hong Kong by the end of this year. The glass manufacturer said the market capitalisation of Xinyi Solar Holdings will not exceed HK$12.098 billion ($1.55 billion) before the exercise of the greenshoe, which based on a plan to sell 25% to 30% through the IPO suggests a maximum pre-shoe deal size of about $385 million to $465 million. Citi and J.P. Morgan have been mandated to handle the spin-off.
