The long-expected initial public offering for Malaysia's Eco World International (EWI) kicked off on Thursday and is expected to price at the top of its indicative range given the institutional book build is already covered with no price sensitivity.
The M$2.48 billion to M$2.58 billion ($555.6 million to $580.7 million) deal's popularity in its home market is not that unexpected given the internationally-focused property firm's IPO is backed by some of South East Asia's most well known businessmen.
Most notably, this includes Tan Sri Liew Kee Sin, the man who helped turned London's iconic Battersea Power Station into a viable commercial project in his previous incarnation as head of SP Setia Berhad - the property company he built up following a reverse takeover in 1996.
Investors hope he will bring the same magic to bear at EWI where he is now executive vice chairman alongside CEO Data Teow Leong Seng, SP Setia's former CFO. The two left SP Setia in 2014 following its takeover by government-owned fund management company, Permodalan Nasional Berhad (PNB).
They then joined KLSE-listed Eco World Developers, where Liew's 25-year son, Liew Tang Xiong, is the largest individual shareholder and privately purchased the assets, which now form the base of EWI: three London property developments and one in Sydney.
They had initially hoped to float EWI in 2015 as a special purchase acquisition company (SPAC). But this proved impossible as the London asset acquisition occurred before the regulator had signed off on an IPO fundraising vehicle, which needed to be asset-free.
The IPO was then delayed again for much of 2016 while management forged an agreement with Singapore-listed GuocoLand run by Malaysian tycoon Tan Sri Quek Leng Chan. Alongside a 27% strategic stake in EWI, GuocoLand is also expected to become EWI's joint development partner (at the operational level) to re-develop a number of Guoco's London hotel sites.
These projects have been hinted at, but no agreements have been formally announced ahead of the listing, which is scheduled to take place on April 3, following final pricing on March 21.
The bookbuild portion of the deal is extremely small and international allocations are likely to be slim, although the group is roadshowing in Hong Kong and Singapore.
This is partly because the deal has mainly been eaten up by strategic and cornerstone investors, but also because it is being pitched as a way for Malaysians to gain pure overseas exposure without remitting currency from the country.
As one banker explained, "Late last year, the Ministry of Finance issued a directive telling government enterprises and funds to hold back on international investments because of the weakness in the ringgit. They've now built up quite substantial and liquid cash positions they want to invest somewhere."
In 2016, the ringgit plunged 13.9% peak to trough between April and December, although it has stabilised since then. All of EWI's revenues are foreign-currency based and will stay that way given its international remit.
Ahead of the deal, EWI locked in EPF, PNB and Kumpulan Wang Persaraan (Diperbadankan) as cornerstones, taking a combined 47.3% of the institutional offering, or 212.4 million shares. The bookbuild comprises 237.059 million shares, raising M$272.6 million to M$284.5 million ($61.3 million to $63.9 million) based on the indicative share price of M$1.15 to M$1.20.
A further 17% is being allocated through the retail tranche, which incorporates 408 million shares.
Alongside GuocoLand, Eco World Development will hold a 27% stake, while Liew senior will hold 10.3%. GuocoLand and Liew will be under a 12 month lock up, while Eco World Development will be locked up for the entire tenure of the shareholders agreement.
At M$1.20 per share (the high point of the range), EWI is being marketed on a very slim 15.4% discount to the syndicate's M$1.42 estimated net asset value per share.
By contrast, SP Setia is trading at a 25% discount based on Wednesday's M$3.40 close. The group is a good comparable for EWI since it will derive about 23% of its 2017 sales from the UK as a result of the Battersea Power Station mixed development, which will number Apple Corp's UK HQ as one of its tenants.
Bankers said the reason for the differential is because EWI does not hold a large landbank so investors will not have to wait as long for a return. While this also suggests the group may not be able to replicate the success of its current portfolio, bankers point out that it will be debt-free at listing giving it plenty of breathing space to expand.
Bankers said the deal is also being pitched on a 2019 earnings multiple as this is when revenues from the UK projects start to kick in. On this basis, the deal is being offered at just under nine times forecast 2019 earnings.
SP Setia is currently trading at 13 times consensus 2019 earnings.
EWI's London assets are all high-end, although again bankers point out they are not super prime; the sector they argue has been most badly hit by a combination of Brexit and increasing UK property taxes.
The three properties are all being co-developed in a 75% /25% partnership with the UK arm of one of Ireland's leading property groups, Ballymore. The latter recently extricated itself from Ireland's bad bank after getting into trouble after the global financial crisis.
But Ballymore has a strong reputation in the London property market where it is solely responsible for phase one of two of the projects being co-developed with EWI.
The first is the London City Island development - a 12 acre residential, commercial and retail development East of the Canary Wharf business district, which is being turned into an arts and culture hub.
EWI's co-ownership covers 5.95 acres and has a gross development value (GDV) of $840 million. At the end of Fy16, a total of 805 of the 1,130 phase two apartments had already been pre-sold.
The second major project is a 5.71 acre development in London's Nine Elms, which is being turned into the capital's new embassy district. Here the group is overseeing Embassy Gardens, which will stand right next door to the new US embassy.
It has a GDV of $1.13 billion and a total of 430 out of 453 units in phase two have been pre-sold.
The third project, Wardian, is also close to Canary Wharf and has a GDV of $699 million. A total of 412 of 626 units have been sold.
Finally, there is the West Village project in Sydney, which has a GDV of A$311 million. Some 329 of the 398 units have been sold.
Joint global co-ordinators for the IPO are CIMB and Maybank with Hong Leong Investment Bank and UOB KayHian on joint books, plus Alliance Investment Bank, AmInvestment Bank and RHB Investment Bank as domestic underwriters.