CapitaLand raises $1.78 billion from CapitaMalls Asia spin-off

CapitaMalls Asia (CMA), the shopping mall business being spun off from Singapore property developer CapitaLand, has priced its initial public offering below the mid-point at S$2.12 per share for a total deal size of S$2.47 billion ($1.78 billion). The shares were offered in a range between S$1.98 and S$2.39.

The demand from institutions was strong enough at the final price that the bookrunners decided to reallocate shares from the retail tranche to satisfy a few additional institutional investors. As a result, the retail offering, which opens today and will run for four days, was reduced to about 8% of the total deal from 12% beforehand. Even so, the retail offering will amount to S$197 million, which will make it the largest ever retail offering in Singapore, according to a banker.

The overall deal also ranks as the largest Singapore IPO ever, exceeding Singapore Telecom's $1.48 billion listing in October 1993, and the only Singapore IPO of size this year.

Sources say investors were buying into CMA on the basis of it being a consumer play with unique exposure to shopping malls across Asia -- including high-growth assets in countries like China and India and more mature low-growth assets in Singapore and Malaysia. The fact that the company is also a developer of these malls was given relatively less focus.

One source noted that the backing by CapitaLand helped drive orders as it gave investors the confidence in terms of quality they needed to commit. "It is unusual that you get good corporate governance with such high growth potential," he said, adding that about 200 investors came into the deal.

However, there was some concern over the fact that a lot of the marketing pitch was about future growth potential. That may explain why the valuation was set in the lower half. At the final price, CMA is valued at 1.55 times its current book value -- a slight premium to parent company CapitaLand, which currently trades at about 1.4 times book. A premium is seen to be warranted as CMA is expected to generate significantly more earnings growth over the next few years as it taps into the economic growth, urbanisation, expanding middle class, growing affluence and spending power in Asia. Some analysts have also noted that the spin-off of the shopping mall business will leave few unlisted assets in CapitaLand's portfolio, which could result in investors starting to apply a larger holding company discount. CapitaLand will still hold 70% of CMA after it lists on November 25.

At 1.55 times book, CMA is, however, coming to market at a slight discount to Hong Kong-listed Hang Lung Properties, which trades at 1.8 times and is viewed as one of the closest comparables because of its shopping mall business in China. One source pointed out though, that if one removes the listed components of CMA's portfolio -- it will hold stakes in CapitaLand's two listed retail-focused Reits, CapitaMall Trust and CapitaRetail China Trust -- then the valuation of the other businesses increases to 1.8 times book. Investors won't pay a premium above the market price for listed stocks, so by taking those out, you get a better idea of the value that investors are willing to attach to the "new" businesses.

The idea of inserting the Reits into CMA has been to create a vehicle with an integrated business that is active throughout the retail real estate value chain - that will design and develop, as well as own and manage.

The IPO comprised approximately 1.17 billion shares that were all sold by CapitaLand. Aside from the 8% retail offering, another 25% or so was taken up by eight anchor investors, many of whom were existing shareholders of CapitaLand. Many of the non-anchor investors were new to the group, though. The source said the total demand was dominated by long-only funds. Neither the company nor the bookrunners gave any indication of the final size of the demand.

At the time of listing, CapitaMalls Asia will have a portfolio of 86 retail properties, across 48 cities in five Asian countries, with a total property value of about S$20.3 billion ($14.4 billion). However, this includes properties that aren't wholly-owned by CMA, such as those that are part of CapitaMall Trust and CapitaRetail China Trust. Of the 86 properties in the portfolio, 59 are already completed shopping malls in Singapore, China, Malaysia, Japan and India, while the other 27 are at various stages of development.

J.P. Morgan and DBS Bank were joint issue managers and bookrunners for the offering, while Credit Suisse and Deutsche Bank were acting as joint bookrunners. J.P. Morgan was also sole financial adviser and, as a result, will be awarded about 35% of the economics.