A block trade in Malaysian offshore services provider Bumi Armada, which was in the market on Thursday night, turned out to be smaller than expected after controlling shareholder Ananda Krishnan chose not to sell any shares.
The Malaysian tycoon’s withdrawal meant the total deal size was cut to 10% of the company from 15%. After the price was fixed at the bottom, the remaining four sellers — all of which were Malaysian investment holding companies — raised a combined M$1.16 billion ($380 million). The order books closed late on Thursday, but the final terms were only released on Friday morning.
According to the initial term sheet, five sellers, including Krishnan’s Objektif Bersatu, were aiming to dispose of a combined 440 million shares to raise between $567 million and $587 million. There was also an upsize option of a further 175 million shares that could have increased the total deal to as much as $825 million at the top of the range. The option was not exercised.
The plan was highly ambitious. Including the upsize option, the deal would have been almost as large as Bumi Armada’s initial public offering in July last year, which raised $888 million. It would also have been the largest ever overnight trade in Malaysia, according to Dealogic, exceeding Khazanah’s $766 million sale of Telekom Malaysia shares in early 2004.
As with most deals done in Malaysia, the Bumi Armada transaction was expected to get good support from domestic investors. However, it seems investors were a bit apprehensive about existing shareholders selling such a big chunk of shares and the demand turned out to be both insufficient for the size and highly price sensitive. Once it became clear that the price would be fixed at the bottom of the range, Objektif Bersatu, which owns about 42.5% of the company, decided not to sell any shares at all.
The other four sellers, which were all pre-IPO shareholders that had been subject to a six-month lock-up after the listing, chose to go ahead. There was no information about how much each of them sold, but a source said they all still own shares in the company after this transaction and will be subject to another six-month lock-up on their remaining holdings. The sellers were Ombak Damani, which owned about 11.6% of the company pre-deal and acted as a promoter for the IPO alongside Objektif Bersatu, Wijaya Sinar, Karisma Mesra, and Wijaya Baiduri.
Once Krishnan decided not to sell any shares, the deal size dropped to 293 million shares. The price was fixed at M$3.95 for a 6% discount to Thursday’s closing price of M$4.22.
The shares were offered in a range between M$3.95 and M$4.09, which translated into a discount of 3% to 6.5%. The discount of the bottom of the range was viewed as very aggressive for a deal of this size — at the initial terms, the base deal alone accounted for more than 100 days of trading volume and, even at 293 million shares, it would take about 87 days to absorb the entire deal, based on the average daily volume during the past three months.
A sale by four pre-IPO shareholders should help increase the liquidity in the stock, though, and hence would have reduced the risk slightly. The 10% sale will boost the free-float to just over 40%, which will also increase the company’s weighting in the benchmark FTSE-KLCI index to more than 1% from 0.7% at present — not quite the 2% that would have been the case had the free-float gone to more than 51% (based on the sellers offloading the full 440 million shares plus the upsize option), but helpful in terms of attracting additional buyers nevertheless.
Still, international investors showed very little interest in the deal and sources said that international investors bought only a very small portion of the shares, making the Rule 144A exemption (allowing the deal to be marketed to onshore US investors) seem a bit superfluous. The overwhelming majority of the shares were allocated to domestic long-only accounts, including pension funds, insurers and mutual funds, the sources said.
Based on the final size, there was some oversubscription that allowed the bookrunners to tighten the allocation, one source said. In all, fewer than 50 investors took part in the deal.
In local currency terms, this was the largest block trade in Malaysia since Khazanah raised M$1.17 billion from a sell-down in CIMB in October 2010. Dealogic lists the size of that deal at $379 million.
Bumi Armada, which is Malaysia’s biggest provider of ships and floating platforms for the oil and gas industry, has performed well since listing and hit a record high of M$4.48 on April 19. Before the sell-down on Thursday, it was trading 39% above the M$3.03 IPO price.
The share price dropped 3.8% to M$4.06 on Friday after the deal.
CIMB was the sole bookrunner, while Royal Bank of Scotland (RBS) acted as a sub-placement agent. This shows that bankers at the two firms have already started to work together after CIMB agreed to buy most of RBS‘s cash equities, equity capital markets and corporate finance businesses in Asia early this month.
