CapitaMalls placement

CapitaMalls Malaysia raises $106 million from placement

The retail-focused Reit will use the money to pay for the acquisition of its fourth shopping mall.

CapitaMalls Malaysia Trust (CMMT) on Friday became the first Asian company in three months to raise new equity capital from a placement, offering yet another sign that market sentiment might be recovering.

Encouragingly, the real estate investment trust (Reit), which focuses on retail properties in Malaysia, was also able to price the deal at the top end of the offering range for a total deal size of M$330 million ($106 million).

Even so, the offering might not act as a trigger for other issuers to follow suit as the circumstances are somewhat special. Most importantly, the proceeds will be used to fund a M$330 million acquisition of a new shopping mall that will be immediately yield accretive, according to an earlier announcement. Bankers say investors are very focused on how companies plan to use the funds raised and deals that have a specific use of proceeds have a much better chance of succeeding in the current market environment. This is true whether the capital is raised through a placement or through a rights issue, which has been the more common form of equity fund raising during the past few months.

Investors were also well aware that the placement was coming as CMMT flagged it when it first announced the acquisition back in June. The trust announced in September that it had received the necessary approvals from Bursa Malaysia and the local regulators to proceed with the share sale.

The acquisition was well-received by the market and the share price has risen about 13% since it was announced. Therefore, it was perhaps not too surprising that investors were happy to participate in a placement too — even if the discount was quite tight.

CMMT offered up to 270.492 million new units at a price between M$1.22 and M$1.26, which translated into a discount of 3.8% to 6.9% versus the latest closing price of M$1.31. However, the trust has declared a dividend of M$0.0283 per unit for the period from July 1 to November 10 that will be paid to investors holding its units at the end of that period. After adjusting the closing price to take this into account, the discount fell to 1.7% to 4.8%.

As noted, the price was fixed at the top of the range at M$1.26, resulting in a 1.7% discount to the adjusted close and a 0.9% discount versus the five-day volume-weighted average price (VWAP) of M$1.3003.

To achieve the targeted gross proceeds of M$330 million, the trust ended up selling 261.904 million units, or about 17.5% of its existing share capital. The final price translates into a 2011 distribution yield of about 6.2%, based on a forecast full-year dividend of M$0.0786.

The Reg-S offering was about 2.5 times covered and was dominated by domestic investors, including the country’s large pension funds. According to a source, only about 25% to one-third of the deal was sold to international investors. The latter was made up primarily by long-only Reit-focused funds from Singapore and Hong Kong, which was no great surprise since there was little time for investors in Europe to look at the deal. The deal launched at 2.30pm after the stock was suspended from the afternoon trading session and closed at about 5pm.

In all, around 30 investors came into the transaction.

CMMT was spun off from Singapore-listed CapitaMalls Asia in July last year and currently ranks as the largest pure-play shopping mall Reit in Malaysia ahead of Sunway Reit that went public a week before CMMT. Sunway has a greater asset value, but its portfolio includes hotels and offices as well as shopping malls. However, both of these Reits could be exceeded by Pavilion Reit, which is also focused mainly on retail properties. Pavilion is currently pre-marketing for a Malaysian IPO that could raise about M$700 million ($222 million).

CMMT’s acquisition of East Coast Mall in Kuantan will increase the number of properties in its portfolio to four from three. The acquisition is expected to be completed by year-end. The new mall, which opened in April 2008 and has a committed occupancy rate of 97%, is expected to contribute more than M$20 million of net property income per year and will also diversify its geographical exposure. Its other malls are in Penang, Kuala Lumpur and Selangor. The new mall houses a mix of Malaysian and international retailers and is part of a mixed-use development that also includes a 519-room hotel and an international convention centre. It is forecast to generate a property yield of about 7.1% for 2011, which compares favourably with CMMT’s estimated net property income yield of 6.7% across its existing portfolio.

Before the addition of the East Coast Mall, CMMT’s portfolio is valued at M$2.43 billion. It has a market capitalisation of about M$1.9 billion ($620 million) following a 31% gain in its share price since listing.

The placement was arranged by CIMB and J.P. Morgan, which were also global coordinators for the IPO last year.

Asia has seen no new share placements of size (above $100 million) since Hong Kong-listed G-Resources Group raised $217 million at the end of July towards its greenfield gold and silver mining project in Indonesia. Morgan Stanley was the sole bookrunner for that deal.

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