Boustead prices plantation spin-off at top

The institutional book for the Malaysian group's palm oil arm was oversubscribed by 12.4 times, and follows the successful floation of vessel operator ICON Offshore.

Boustead Holdings Berhard has completed the spinoff of its plantation assets, raising M$928 million (US$288.7 million) in an initial public offering after pricing the shares at the top end of the range.

The IPO follows the successful flotation of ICON Offshore Berhard yesterday and is now Malaysia’s second largest to date.

Both institutional and retail shares priced at M$1.60 a unit, the top end of the initial M$1.50 to M$1.60 range with strong demand. The institutional book was oversubscribed by 12.4 times, and primarily consisted of Malaysian long-only institutional investors, similar to the other local listings this year — ICON Offshore and 7-Eleven Malaysia.

The price values Boustead at M$2.6 billion.

The base deal comprised 656 million shares — 580 million primary and 76 million secondary. There was an overallotment option of 64 million secondary shares offered by the main selling shareholder Boustead Holdings.

The institutional tranche consisted of 163.6 million shares, with 125.2 million offered to Bumiputera — or indigenous — investors, with an additional 29 million offered to Malaysian institutional investors, according to the prospectus. The retail tranche comprised 492.4 million shares, which included the investing public and Boustead employees.

Boustead has a 2013 p/e valuation of 16 times earnings, which puts the company at a discount relative to other Malaysian plantations — Genting Plantations, IJM, IOI Corp and Sime Darby are ranging between 18 and 34 times.

Other comparables, such as Ta Ann and TSH Resources, are trading at 13.7 times and 16.8 times, respectively. And Felda Resources, which raised $3.1 billion in a 2012 IPO, is trading at 15.5 times.

Proceeds, outlook

Some 45% of proceeds raised from Boustead’s IPO will go towards boosting the company’s land ownership by an additional 20,000 hectares to hit 100,000.

A number of promising government initiatives should support growth in upcoming years. The Government of Malaysia aims to boost its contributions to the palm oil industry by more than 200% from M$52.7 billion in 2009 to M$178 billion by 2020, according to the IPO prospectus.

This will involve improvements to upstream production, such as speeding up replanting of oil palm trees, improving worker productivity, increasing oil extraction rates and developing biogas at palm oil mills. It will also improve downstream production, including commercialising second-generation biofuels and accelerating growth in food and health-based downstream segments.

As the world’s second largest producer of palm oil, Malaysia’s plantations stand to profit enormously from rising palm oil usage globally. It is used in cooking oil, margarine, bakery shortening and confectionary fats, as well as soaps, detergents, toiletries and cosmetics.

However, government initiatives aside, Boustead’s profits remain largely dependent on crude palm oil prices, which, like many commodities, can be volatile. The FTSE Bursa Malaysia Asian Palm Oil Plantation Index is up 5.6% so far this year.

It has been a busy week for Malaysia’s bourse. Boustead’s flotation comes just hours after ICON Offshore, Malaysia’s largest pure-play offshore supply vessel operator, priced its shares at the top of the range and raised $295 million.

Both appear to have caught positive tailwinds from 7-Eleven Malaysia’s $227 million offering in May. The institutional books for both deals were oversubscribed - ICON’s by 15 times and 7-Eleven Malaysia by 12 times.

This latest deal brings the amount raised by Malaysian issuers to $883 million year-to-date, compared with $335 million during the same period last year, according to Dealogic.

Affin Investment Bank, Maybank and Credit Suisse led the deal.

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