Astro prices Malaysian IPO at the top, raising $1.5 billion

The Ananda Krishnan-backed pay-TV operator attracts 16 cornerstones and $10 billion of demand from other institutional investors.

Astro Malaysia Holdings, the consumer media entertainment group that is backed by Malaysian business billionaire Ananda Krishnan, has priced its initial public offering at M$3 per share to raise M$4.56 billion ($1.5 billion).

The final price, which is at the top of the indicative range and values the country’s leading pay-TV operator at a premium to most international peers, was in line with expectations after the deal met with strong demand from institutional investors.

Like the two other multi-billion dollar Malaysian IPOs this year – palm oil producer Felda Global Ventures and hospital operator IHH Healthcare – Astro had set aside a large portion of the transaction for retail investors, ethnic Malay investors (also referred to as Bumiputera investors) and cornerstones, leaving only 15.3% of the shares, or about $233 million, for international investors. That portion of the deal was more than 30 times subscribed, according to a press release issued by the company yesterday.

Sources added that the placement tranche, which covered both domestic and foreign investors and accounted for about 55% of the offering, attracted 350 investors and generated $10 billion of orders, including a few pretty chunky ones. About two-thirds of that demand came from international accounts and was split fairly evenly between Asia, Europe and the US, one source estimated. The rest came from Malaysian institutions. Overall, the final allocations were similar to the demand, although a large number of institutions didn’t get any shares at all, he said.

The limited number of available shares clearly contributed to the interest, but international investors were also drawn to the company because of its dominating position in Malaysia’s pay-TV market, its strong growth potential versus international peers, good margins and quality management.

Many investors were also already familiar with the company since the businesses currently owned by Astro Malaysia have previously been listed in Malaysia as part Astro All Asia Networks (AAAN). Like several other companies backed by Krishnan, AAAN was taken private and delisted in June 2010 and has since been restructured to strip out the loss-making international business, which is still at a developing stage and hence requires a lot of growth capital. This left the Malaysian business (renamed Astro Malaysia) with a clearer focus and stronger growth trajectory and allowed it to return to the market at a higher valuation than it had when it was privatised just over two years ago.

Astro will have a market capitalisation of M$15.6 billion ($5.1 billion) at the time of listing. Based on the cash offer price, AAAN had a market cap of about M$8.3 billion when it was delisted.

In addition to the company specific issues, international investors were also aware that this is likely to be the last big Malaysian deal to come to market in 2012 and hence one of the last opportunities to get a meaningful exposure to the Malaysian market in general and the consumer sector in particular.

Malaysia has dominated the new listings in Asia ex-Japan this year with three IPOs above $1 billion. Astro is the third largest after Felda and IHH, which raised $3.3 billion and $2.1 billion respectively.

Equity capital markets volume in Malaysia reached $8.6 billion in the first nine months, which is an all-time high and more than double the $3.9 billion raised in the same period last year, according to Dealogic. This helped propel the ECM activity in Southeast Asia to a record $21.4 billion in the January to September period – a 31% increase year-on-year and a notable contrast to the rest of the region, which is suffering from declining deal flows.

Malaysia hasn’t stood out in the same way in terms of secondary market performance with the index up 8.5% year-to-date, compared with gains of more than 20% in markets like Thailand, India and the Philippines. Hong Kong’s Hang Seng Index is currently up 13.4%. However, the benchmark FTSE Bursa Malaysia KLCI index has been edging steadily higher for most of this year and a 0.7% gain yesterday took it to a record close just above 16,600 points.

And, perhaps more importantly, Felda and IHH are both up versus their IPO prices, giving investors the confidence to participate other deals. As of yesterday, Felda had gained 5.5% since its listing in June, while IHH was up 14% since its July debut. Two other companies that have been privatised by Krishnan and then restructured and relisted in the past few years have also yielded good capital returns to investors: mobile phone operator Maxis, which listed in 2009, is currently up 40%, while oil and gas services company Bumi Armada is trading 23% above its 2011 IPO price.

Astro sold approximately 1.52 billion shares, which accounted for 29.2% of the company. Some 31.2% of the shares were new, while the remaining 68.8% were secondary sales sold by Astro Networks (Malaysia). The latter is a wholly-owned subsidiary of Astro Holdings, the promoter of the IPO, which is controlled by Krishnan. The deal comes with no greenshoe option.

The shares were offered at a price between M$2.70 and M$3 apiece, and as noted the price was fixed at the top of that range. At M$3 per share, Astro is valued at a 2013 enterprise value-to-Ebitda multiple of 11.1, which puts it at a premium versus key international peers like UK-listed BskyB and US-listed Discovery Communications, which trade at 2013 EV/Ebitda multiples of 8.4 and 11 respectively. Most other Australian and US pay-TV operators are valued at forward multiples in the high single digits, according to a source.

However, Indonesia’s MNC Skyvision, which listed in early July following a $220 million IPO, has received a boost during the marketing of Astro and after gaining 28% since mid-September it is now trading at an EV/Ebitda multiple of 12.4.

Astro is Malaysia’s leading integrated cross-media group with operations in pay-TV, radio, print and digital media. As the country’s biggest residential pay-TV operator, it had a market penetration rate of about 50% of Malaysian TV households, of which it had a market share of about 99% of the residential pay-TV market, according to the prospectus. As of the end of July, it had more than 3 million pay-TV subscribers.

Some 17.1% of the shares were set aside for Malaysian retail investors as well as eligible company directors and employees, and another 39.4% went to the Bumiputera tranche. On top of that, 430 million shares, or 28.3% of the deal, were taken up by 16 cornerstone investors, including Great Eastern Life Assurance (Malaysia), Malaysian pension fund PNB, TPG-Axon and a slew of other Malaysian and foreign asset managers. About half of the cornerstone tranche went to domestic investors.

The cornerstones have committed to a three-month lockup, although they are each allowed to sell up to 15 million shares in the first three months. This means that only 190 million of the 430 million cornerstones shares are actually subject to the lock-up.

The company also has the support of state-owned Malaysian investment company Khazanah Nasional, which will own an indirect stake of about 20.8% via its investment in Astro Holdings.

Astro plans to use most of the proceeds for capital expenditures and to repay bank borrowings. The company has said that it plans to pursue a “targeted acquisition strategy” to drive the growth of its subscriber-base.

The trading debut is scheduled for October 19.

CIMB, Credit Suisse, Goldman Sachs, J.P. Morgan, Maybank and UBS were joint global coordinators for the IPO, while Bank of America Merrill Lynch, Citi, DBS, Deutsche Bank, Macquarie, Morgan Stanley and RHB Investment Bank were involved as joint bookrunners.

¬ Haymarket Media Limited. All rights reserved.
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