Canadian financial services group Manulife pulled its S$569 million ($426 million) Singapore Reit initial public offering on its scheduled pricing day after global volatility meant the leads were unable to cover the order book.
The 767.3 million unit deal for Manulife US Reit is believed to have closed about 70% subscribed on Friday after the offering failed to build momentum against a backdrop of China's collapsing stock markets and Greece's potential Eurozone exit.
Sources close to the transaction reported that Singapore-based private banking demand held up but the deal failed to attract much additional interest from long-only and hedge funds. This meant that after the order book opened half covered nearly all the additional demand came from private banking sources.
"Generally speaking, I think it's fine to launch deals [that] are half or three-quarters covered and then build from there during roadshows, one fund manager told FinanceAsia. "It's quantifiable demand, which is more than you can say for most China-related IPOs.
"Their order books tend to be full of hot air and weak anchors," he added. "All too often it all just disappears once a deal opens for trading. I really don't think this is any way to run an IPO."
Manulife US Reit had secured six cornerstones, which had agreed to take up 23.56% of the deal and comprised DBS, DBS on behalf of a number of private banking clients, Fortress Capital, Lucille Holdings, Nikko Asset Management and Oman Investment Fund.
The remainder of the institutional tranche and retail offering had a 90.5%/9.5% split, with a greenshoe potentially adding a further 6.7% to the base deal. Subject to the greenshoe being exercised, Manulife would have retained a 9.5% stake.
In a note to clients, joint bookrunners DBS and JP Morgan said the IPO is likely to proceed at a later date once market conditions calm down.
It should be well received given the strong brand name and experience of the Manulife group, not to mention the novelty value of US-based office assets for Singaporean investors. However, much will depend on the market's interest rate expectations.
The ongoing global volatility continues to outweigh expectations of US rate rises. In the year-to-Monday's US close,10-year Treasuries have traded in 36bp to 2.29%. On Monday alone, they tightened 10bp.
And in Singapore, government bonds were also 3bp tighter on Monday at 2.67%.
Most Asian Reit sectors were fairly flat week-on-week to Friday, although Singapore-listed office Reits continued to marginally trade down due to a 1% drop in Keppel Reit's share price.
Manulife's closest comparables (CapitaCommercial Trust, Douglas Emmett and Hudson Pacific) were all flat on the week except for I-Reit, which bucked the market and has risen 6.9% over the past three trading days.
This outperformance followed the news that I-Reit will almost double its asset portfolio with the €144.4 million acquisition of an office building in Berlin on a pro-forma NPI yield of 7.1%. A DBS-led S$88.7 million rights issue (rights price of S$.0468) and €102 million in debt will fund the transaction.
In a sales note, DBS said the deal is expected to boost I-Reit's dividend yield from 8.3% to 9.3% based on a theoretical ex-rights price of S$0.70. Prior to the deal, the bank had a target price of S$.90 on the stock.
The Reit's majority shareholder Tong Jinquan, Lim Chap Huat and IReit Global Management will all take up their rights in full.