Offshore supply vessel operator ICON Offshore has begun investor education for a M$944.9 million ($295 million) initial public offering of shares just as the plantation arm of Boustead Holdings wraps up pre-marketing for a M$1.1 billion ($324 million) deal.
Both Malaysian flotations hope to catch a positive tail wind from last week's successful completion of a M$732 million ($227 million) IPO for the Malaysian 7-Eleven franchise. Like 7-Eleven Malaysia, the two new deals are both heavily skewed towards the domestic market, with little paper on offer for foreign institutions. Both deals will price mid-June and should list by the end of the month.
ICON Offshore, Malaysia’s largest pure-play OSV operator, represents the first public divestment by Ekuiti Nasional Berhad (Ekuinas), the government-linked private equity group with a remit is to promote and develop Bumiputera -- or indigenous -- companies. Its IPO also offers investors rare exposure to the exploration and production activities of the country’s national champion, Petroliam Nasional Berhad (Petronas), and unsurprisingly has a very rich valuation attached to it.
The base deal size comprises 510.767 million shares, representing 43.4% of the enlarged share capital. This has a primary/secondary split of respectively 24.6% and 18.8% of the group’s enlarged share capital.
There is also a greenshoe representing 15% of the base offering.
Of the shares on offer, 324.7 million have been placed into an institutional tranche. Cornerstone investors currently account for 156 million of this total, with just under a dozen names in the final stages of being signed up by the leads.
Most are Malaysian entities but a small handful of the total comprise regional long-only funds. All cornerstones will subject to a six-month lock-up but have the option of participating in the institutional bookbuild as well.
Bumiputeras will be offered 135.3 million shares, with 35.3 million pitched at retail investors and the remaining 15.3 million going to company directors and employees.
Pricing ICON Offshore
The maximum IPO price has been fixed at M$1.85, with formal roadshows set to begin at the end of the month.
At M$1.85 per share, the deal is being marketed on a price-earnings ratio of 17.6 times estimated 2014 earnings and 13.1 times 2015 earnings.
This puts it at a premium to almost every other listed OSV operator in Malaysia and Singapore, not to mention global operators like Tidewater.
The closest listed comparables within Malaysia are Alam Maritime, Bumi Armada and Perdana Petroleum, which are currently valued at between 12.3 and 18.7 times 2014 earnings.
The three have had a mixed performance year-to-date, with Alam flat, Bumi Armada down 3% and Perdana up 14.4%.
Singapore-listed EZRA Holdings also has big operations in Malaysia and is currently trading at 17.1 times earnings. However, no non-Malaysian peer is directly comparable to ICON Offshore because of Malaysia’s cabotage rules, which favour operators carrying the national flag.
ICON Offshore’s valuation becomes more comprehensible when viewed as a proxy for Petronas. The group’s hydrocarbon arm, Petronas Carigali, is ICON’s main client and accounted for 71.7% of total revenues in 2013.
This single client risk would normally raise a red flag but in Malaysia, where business and politics are inseparable, it is ICON’s calling card for investors. The company services Petronas’s shallow water operations, largely by towing rigs and has a total fleet of 32 ships, with a further eight under order, or negotiation.
Other Malaysian companies with exposure to Petronas’s hydrocarbon operations are trading at richer valuations. The oil group’s own listed subsidiary, Malaysia Marine and Heavy Engineering, which repairs vessels, is currently trading at 26.85 times 2014 earnings and its shares are up 11.4% year-to-date.
Investors can also build exposure to Petronas through oilfield service operator UMW Oil & Gas, for which it is also the major client. UMW is currently trading at 31.4 times 2014 earnings.
Both ICON Offshore and UMW are heavily influenced by oil prices and many of the majors are lowering their capital expenditure in 2014. However, Petronas is one notable exception after committing M$300 billion ($93 billion) in capex through to 2018 as part of Malaysia’s Economic Transformation Programme.
Of the total capex outlay, 89.8% has been committed to shallow water operations. This is also cited as another selling point for ICON Offshore.
The company’s shallow-water fleet of Anchor Handling and Anchor Handling Tug Supply vessels enjoyed high utilisation rates of 86.2% in 2013. This is expected to continue over the next six years, driving an estimated 13.8% increase in OSV day rates.
Joint books for the deal are BNP Paribas, Credit Suisse and Maybank.
Boustead Holdings Berhad, meanwhile has completed investor education for a 656 million share deal spinoff of its plantation assets, which could raise M$1.1 billion ($324 million) based on a maximum IPO price of M$1.60.
The base deal represents 41% of the enlarged share capital, with a further 4% on offer if a 64 million share greenshoe is exercised. The deal has an 88.4% and 11.6% split between primary and secondary shares.
Nearly all the deal has been carved out for various constituents of the Malaysian investor base, with Boustead’s own shareholders entitled to participate in a restricted offer for sale. This comprises 206.8 million shares on a one-for-five basis.
Investors in the group’s now de-listed real estate investment trust Al-Hadharah Boustead will also be able to subscribe to a total of 174 million shares on a three-for-five basis. The Reit, which held some of the group’s plantation shares, was taken private in December 2013 because management wanted to use earnings for capex rather than dividends.
Alongside these two tranches, bumiputeras are being offered 125.2 million shares, retail investors 64 millions shares, Boustead employees 47 million shares and institutional investors the remaining 38.4 million shares.
At M$1.6 per share the deal is being offered at 16 times earnings on a trailing twelve months basis.
This pitches it at a discount to the Malaysian plantation universe, which averages higher yields per fresh fruit bunch. At one end of the scale Genting Plantations is currently trading at 37.8 times, while IJM, IOI Corp and Sime Darby all range in the low to mid 20’s.
At the other end of the scale, Ta Ann and TSH Resources are trading at, respectively, 16.9 times and 18.95 times. Felda Resources, which bought Malaysia’s last jumbo IPO to market in 2012 raising $3.1 billion, is currently trading at 16.35 times.
Proceeds from Boustead’s IPO are being used for capex and to boost the group’s land bank by a further 20,000 hectares to hit a 100,000 target. Like many Malaysian planters, the group has had to turn its focus away from Peninsular Malaysia, where land is becoming scarce, towards Sabah and Sarawak where plots are more plentiful but fruit yields are lower.
Crude palm oil prices are the key to profit growth. These typically weaken towards mid-year but some analysts believe the trend is about to reverse following a drought in the first two months of the year.
The Australian Bureau of Meteorology also currently estimates a 70% probability that an el Ñino will form in 2014, which will further impact harvests and drive prices higher.
The FTSE Bursa Malaysia Plantation Palm Oil Index is up 6% so far this year.