Maybank's rights issue well covered; Keppel next in line

The success of rights issues as a capital-raising tool in Asia continues with Malayan Banking, or Maybank, saying late Friday that its M$6.02 billion ($1.7 billion) offering was 127.7% subscribed, including excess applications. After a significant dip following the deal announcement in early March, the share price assumed an upward trend and by the time the rights offer closed last week, the rights price was at a 36% discount to the market price, making it an opportunity too good to pass up for most shareholders.

As the list of successful rights offerings grows, the number of Asian companies considering a deal of their own is also getting longer and bankers expect at least another three or four issuers to announce plans to tap their shareholders for funds in the coming months. First out in this next wave of issuers is Singapore property company Keppel Land, which said on Friday that it is seeking to raise S$712.3 million ($478 million) by selling shares to its existing investors.

Keppel's renounceable offering will come at a tighter discount versus the theoretical ex-rights offering price than most of the other issuers so far, and as such may become something of a test of whether the recent gains in the secondary markets are also feeding through to better sentiment for primary issuance. However, like the other transactions, the deal has strong support from the controlling shareholder -- Keppel Corporation -- which may buy up to 90% of the deal if necessary. The remaining 10% of the offering will be underwritten by Merrill Lynch, which is also acting as the sole lead manager for the transaction and financial adviser to the company.

So far, none of the Asian rights issues this year has had to make use of the controlling shareholders' commitment to buy more than their pro-rata entitlements as they have all seen good support from minority shareholders -- or from investors picking up the rights in the market. Consequently, none of the underwriters has had to stump up any cash either and the sub-underwriters have not received any shares.

Maybank's offering had the support of existing shareholders representing 69.4% of its capital, which all took up their pro-rata entitlements. These buyers included Employees Provident Fund, Permodalan Nasional Berhad (PNB) and Skim Amanah Saham Bumiputera (ASB), which is a unit of PNB and Maybank's largest shareholder with 45.6%.

In addition to that, PNB had committed to apply for an excess allocation of up to 20%, while the remainder was underwritten by MIDF Amanah Investment Bank (another subsidiary of PNB), RHB Investment Bank, Credit Suisse and Goldman Sachs -- commitments that, in the end, were not needed. Credit Suisse and Goldman also acted as lead managers for the offering together with Maybank Investment Bank.

The bank said it received enough rights-based acceptances to cover 98.9% of the offering and excess applications (including PNB's 20%) to cover another 28.8%, leaving the deal 27.7% oversubscribed. Foreign investors, who held 10%-15% of Maybank before the rights issue, generally took up their entitlements and sources say they also accounted for part of the excess applications as well. Their confidence was apparently boosted during the company's roadshow when the management presented a pretty conservative strategy for how to get through the current financial crisis -- an approach that investors like these days after the massive losses racked up by the US and European banks during the past year.

One source notes that the management acknowledges that it has overpaid for the past couple of international M&A transactions, and the rights issue gives the company the opportunity to wipe the slate clean by reducing its debt ratios and write off a substantial part of these investments that have been acting as an overhang on the stock.

Maybank sold approximately 2.2 billion shares, on the basis of nine rights shares for every 20 existing shares, at a price of M$2.74 per share. The price represented a 34.4% discount to the theoretical ex-rights price (Terp) of M$4.17 and was on par with the discounts offered by the likes of DBS, CapitaLand, Chartered Semiconductor and Indonesia's Bank Danamon, which have all completed successful rights offerings in the past few months.

Keppel is offering its shares at a 27.6% discount to a Terp of S$1.50 -- the tightest discount so far after CapitaMall Trust, which offered its shares at a 28.7% discount. Compared with last Thursday's closing price of S$1.88, the final trading day before the deal was announced on Friday morning, the discount was 42%.

Keppel said existing investors will be able to buy nine new shares for every 10 shares they currently hold at a price of S$1.09, resulting in the issuance of 653.5 million new shares. The offering already has the necessary approval from shareholders, but still needs a go-ahead from the Singapore Exchange. Once that has been obtained, the company will announce the timetable for the offering, including the record date for determining which investors will have the right to participate in the offering. The deal is expected to be completed by mid-June.

The company said the rights issue is a strategic initiative to strengthen its balance sheet and enhance its financial flexibility to put it in a position to pursue opportunities in its core markets and to maximise long-term shareholder value through a continued focus on residential, office and township developments.

"The company believes that the current macroeconomic environment will present attractive opportunities in the real estate sector across Asia," it said in the announcement.

At the end of March, Keppel had a cash balance of S$627.3 million ($421 million) and a net debt-to-equity ratio of 0.52. As a result of the rights issued, the latter will fall to 0.22, while the net tangible asset value per share will drop to S$2.35 from S$3.50. In the first quarter this year, the company posted a net profit of S$36.9 million, which compares with a full year 2008 net profit of S$227.7 million.

As noted earlier, Keppel Corp, which owns 52.6% of Keppel Land, will buy its pro-rata portion and in exchange for a 1.5% fee it will also sub-underwrite another 37.4% of the deal for a maximum take-up of 90%.  

Keppel Land's share price briefly dipped below S$1 in early March, but since then it has gained 72% to yesterday's close of S$1.71. However, like its Singapore real estate peers, the stock was under significant pressure for most of last year and is still well below the S$6 level where it traded 12 months ago.