Airports block lifts Malaysia ECM to new heights

Total equity fundraising in the country surpasses the full year total for 2016 after Khazanah Nasional sells a 3.5% stake in Malaysia Airports.

Khazanah Nasional sold part of its stake in Malaysia Airports on Tuesday through a M$476 ($112 million) overnight block trade, as the state investment fund continues to divest its non-core equity interest in certain government-linked companies (GLCs).

The transaction did not come as a surprise and underscores Khazanah's strategy of gradually reducing its stake in GLCs in order to fund investment in foreign companies and financially-struggling local companies like Malaysia Airlines. It's also a sign of the relative strength of Malaysia's ECM market, which has now beaten its full-year fund-raising total for 2016.

The Malaysia Airports block trade is the second of its kind by Khazanah over the last three months, following its $133 million sale of a 1% stake in the country’s biggest bank, CIMB, in late July.

Malaysia’s equity capital market has a decent run in the second half of the year with over $1.5 billion of equity raised besides the two Khazanah-led transactions. Other deals include Lotte Chemical’s $877 million initial public offering, Mitsubishi UFJ Financial’s $610 million sale of CIMB and another $387 million primary share placement by Maxis.

According to Dealogic, Malaysia’s total equity fundraising of $3.05 billion this year has, after Tuesday's sale, now surpassed last year’s $2.98 billion total. With nearly three months left until the end of the year, it remains to be seen whether the figure can leapfrog the $3.9 billion of equity raised in 2015, though it is unlikely to not get near the $11.5 billion raised in 2012.

Banking sources familiar with Khazanah said the investment fund had considered disposing of Malaysia Airports shares by issuing an exchangeable bond, but Tuesday’s block deal suggests it eventually decided to take a more conventional route.

The 58 million-share deal was pitched at M$8.2 to M$8.52 per share before settling at the lower end of the range, representing a discount of 3.76% over the stock’s M$8.52 Wednesday close.

Unsurprisingly the Reg S-only deal was predominately taken by domestic investors, with the top six accounts taking 55% of the shares on offer, according to a source familiar with the transaction.

Khazanah picked a relatively favourable time for the trade with Malaysia Airports shares trading 40.5% higher since the beginning of the year, outpacing the broader market’s 7% gain.

However, the relatively large deal size – equivalent to 3.5% of the company’s share capital and 23.5 times daily volume on a three-month average basis – means it was not an easy and straightforward transaction from the seller’s perspective.

Equity analysts are divided over Malaysia Airports’ short-term performance. JPMorgan analysts suggest the stock could maintain its rising momentum after total passenger volume rose 9.4% in August, signaling the continued recovery of the country’s tourism which was devastated by the mysterious disappearance of flight MH370 en route from Kuala Lumpur to Beijing in 2014.

However, Kenanga analysts believe the airport operator’s better earnings prospects have already been priced into the stock’s strong run this year.

Malaysia Airports is the holding company for 38 domestic airports including the Kuala Lumpur International Airport. It also operates Istanbul’s Sabiha Gökçen International Airport in Turkey, and has subsidiaries that manage hotels, car parks and duty-free shops.

Khazanah remains Malaysia Airports’ biggest shareholder with a 33.2% stake after the sale, while the Employees Provident Fund is the second biggest with 10.2%.

Maybank and Credit Suisse were joint bookrunners on the block sale.

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