Asian Pay Television Trust (APTT) has raised S$1.35 billion ($1.1 billion) from its initial public offering in Singapore after attracting solid demand and fixing the price above the mid-point of the range, at S$0.97.
APTT will have a single asset at the time of listing — cable-TV company Taiwan Broadband Communications, which it is acquiring from two Macquarie funds — and will be the first Singapore business trust to be backed by media assets.
This would have helped attract yield-focused investors looking to diversify their holdings. It also led to sizeable demand out of the US, which is home to a lot of specialist media funds.
It obviously didn’t hurt that the final price translates into a yield of 8.51% for 2014, which is attractive compared to the 4.5% to 6.5% offered by most Singapore-listed real estate investment trusts (Reits). The most recently listed Reit, Mapletree Greater China Commercial Trust (MGCCT), offered an implied yield of 5.6% for the fiscal year to March 2014 and 6.1% for the 12 months to March 2015 through its February IPO.
At 8.5%, APTT is also paying a higher yield than Croesus Retail Trust, a business trust backed by four shopping malls in Japan that listed in Singapore just over a week ago. Croesus’s IPO price translated into a yield of 8% for the fiscal year to June 2014 and 8.1% for the fiscal year to June 2015.
The IPOs of both MGCCT and Croesus were well oversubscribed and MGCCT’s unit price has gained 21.5% since its trading debut in early March. Croesus has come back a bit after rallying 23% on its first day of trading on May 10, but as of last Friday was still trading 16% above the IPO price.
Meanwhile, HKT Trust, the PCCW-backed telecom-focused trust that listed in Hong Kong in late 2011, is currently trading at a 2014 yield of about 6%.
According to sources, the APTT offering was multiple times subscribed at the final price with orders from well over 100 institutional investors. About 80% of the institutional tranche was allocated to cornerstones, anchor investors and other long-only accounts, such as pension funds, while private wealth managers and hedge funds were heavily scaled back.
A key reason for that is that the existing shareholders of Singapore-listed Macquarie International Infrastructure Fund (MIIF) are entitled to free shares in the trust. MIIF is selling its entire 47.5% stake in Taiwan Broadband Communications to APTT for S$510.1 million and will be distributing all of the selling proceeds to its shareholders.
The MIIF shareholders can choose to take their part of this distribution in cash instead of shares, but a significant portion is expected to opt for shares. And since they have until May 21 to make this choice, the bookrunners didn’t actually know how many units they had at their disposal at the time of allocation.
What they did know was that whatever allocation they gave investors to begin with will be scaled back to free up units for the MIIF shareholders. And they obviously wanted to limit the risk of having investors dump their entire allocation because they feel they received too few units to make it a position worth holding on to.
If the MIIF shareholders take their entire entitlement in shares, they will end up with 37.7% of the deal. This is unlikely to be the case, but sources said the expectation is that they will take at least 50% of the portion set aside for them. This is partly backed by the fact that investors will have to make an active choice in order to receive cash, partly by the fact that Taiwan Broadband Communications is viewed as the crown jewel in MIIF’s portfolio and an asset that many of them would want to hang on to. In fact, according to one source, some existing MIIF shareholders are even acting as cornerstone investors for the APTT IPO.
Also, the trading volume in MIIF has increased significantly since the fund announced the plan to sell the Taiwan pay-TV operator to a Macquarie-sponsored business trust in early April. Sources said the pick-up in volumes was a clear indication that investors were buying MIIF shares as an option to get free shares in APTT. The share price also increased by about 10% to a high of S$0.222 before the stock was suspended from May 7 onwards — the day it was to start trading without the rights to the IPO entitlement.
When MIIF resumed trading on Friday last week, the share price dropped 14% to S$0.191, reflecting the divestment of the media assets.
APTT is selling approximately 1.39 billion new units, or 97% of its share capital, to public investors, while the remaining 3% will be taken up by Macquarie Capital Group (the sponsor).
Of the public portion, 32.8%, or 457.5 million units, is going to the nine cornerstone investors, including Capital Research and Management, hedge fund manager Och-Ziff and Gorge Soros’s Quantum Partners. The largest among them is Prudential’s Asia asset management business, Eastspring Investments, which is buying 96 million units at a total cost of S$93.1 million. The prospectus doesn’t specify the take-up by each of the other cornerstones.
Another 5% is earmarked for retail investors, leaving 62.2% or just over $684 million worth of units for other institutional investors. The allocation to MIIF shareholders will come out of this portion.
The institutional allocation will increase slightly if the 5.2% overallotment option is exercised in full. That could also increase the total proceeds to approximately $1.13 billion, or $1.16 billion if you include the sponsor portion.
The proceeds will be used primarily to acquire 100% of Taiwan Broadband Communications from MIIF and the Macquarie Korea Opportunity Fund, and to repay outstanding debts.
The units were offered at a price between S$0.92 and S$1.00 each, although one day before the institutional books closed on Wednesday last week, the bookrunners told investors that the price would be fixed at S$0.97 or higher.
Based on the final price, the actual yield for 2013 is 9.2%, although that includes cash that APTT will receive as a result of the IPO. Based on the projected operational earnings alone, the 2013 yield would be about 7.5%, which in turn implies a distribution growth of 13% between 2013 and 2014.
Taiwan Broadband Communications was set up in 1999 and is one of the top-three cable-TV operators in Taiwan. It owns interests in five cable-TV networks that each has a monopoly on providing cable-TV services in their respective regions. Its network broadcasts all of the 20 most popular TV channels in Taiwan.
MIIF decided to sell its 47.5% stake in the company following a strategic review on how best to generate more value for its shareholders. The review concluded in December that the most value would be had by divesting all its existing assets and distributing all the proceeds and excess cash to its shareholder. Once that is done, the Singapore-listed company will be wound down.
In a statement published on the Singapore Exchange website on April 4, MIIF said a business trust is the most suitable listing vehicle for businesses such as Taiwan Broadband Communications, which tend to generate stable cash flows in relatively low-risk operating environments.