Having seen its share price fall steadily since the announcement of roadshows at the beginning of March, the final straw for the government-owned company came on the day of pricing (Wednesday), when the counter suffered a sharp fall from S$1.48 ($0.82) to S$1.41. Despite the fact that lead manager JPMorgan had gathered a full order book of what many acknowledge to be tier 1 accounts, the company decided not to proceed in the face of a share price which had hit a two-year low.
"The deal basically got killed by movements in its own share price and the wider market as a whole," says one banker. "It must have been a tough call to move ahead when the markets were in the state they were and in the end it came down to timing really. I don't think anyone doubts that it wasn't a high quality book."
Observers report that, while the book had some price sensitivity, this only accounted for about 25% of accounts, many of which firmed up final orders at a S$1.38 to S$1.40 level. Most orders, by contrast, were said to derive from value investors happy to pay at the market and comfortable with the company's equity story.
"Most investors seemed to have a fairly good idea where they thought fair value was and typically set price targets in absolute terms," one observer comments. "The problem was that as the share price came down, the targets began to look less and less attractive in relative terms. Earlier on in the marketing process, for example, as the stock traded around the S$1.60 level, accounts were targeting S$1.50, a 5% to 6% discount.
"But as the stock moved down towards S$1.50," he adds, "investors started shifting down towards S$1.40. For the company, this level seemed to be the absolute line in the sand."
A number of Asian ECM bankers have been critical of the decision to plough ahead in volatile global markets. Some adhere to the view that it would have been wiser to conduct an accelerated bookbuild, particularly for a deal that was only set to raise about S$300 million ($169.2 million).
As one puts it: "In these markets, no prospective issuer should go on the road unless it has a fantastic story to sell, or is getting a strategic investor in. Far better to spot a market window and catch it quickly before it shuts again."
However, as a second replies: "This is all too easy to say with hindsight. The company was very keen to do a roadshow."
Having been described as a curate's egg by one observer, it would seem particularly important to present investors with a coherent story. Indeed, Sembcorp appears to be a company which divides observers down the middle. On the one hand, there are those who fault it for the lack of a focused strategy.
As one Singapore specialist argues, "It doesn't have a great business model and there seems to be no consistency to its story. Investors also want earnings now, not the distant promise of things to come in 18-24 months after the company bids for new acquisitions."
Others, however, are impressed by its move towards a utility play. "Our analysts believe this side of the company presents good earnings potential," says one. "It's a relatively new aspect for the company, but one that has gone down well with investors too."
Sembcorp has four key areas of operation comprising engineering and construction, integrated logistics, marine engineering and utilities services. It is making a particularly big push on Jurong Island where the government is developing a petrochemicals complex of up to 150 multinationals and the company will supply water, gas, steam and soon, power to various plants. It is currently 44.4% owned by Singapore Technologies and 13.43% by Temasek.
It had hoped to sell 185 million new shares, representing 11.5% of the company's enlarged share capital. Nomura was co-lead. Following the postponement of the deal, the company's share price rebounded 11% Thursday, to close at S$1.55, down 8.82% year-to-date. The Straits Times Index, meanwhile, continued to fall, dropping a further 1.5% to close at 1,622.27, down 15.507% year-to-date.
