IGB Reit raises $268 million from Malaysia IPO

The retail mall trust prices its deal at the top of the range, with an implied distribution yield of 5.4% for 2013.
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IGB Reit's Mid Valley Megamall: part of one of the biggest mixed-use developments in Malaysia
<div style="text-align: left;"> IGB Reit's Mid Valley Megamall: part of one of the biggest mixed-use developments in Malaysia </div>

IGB Reit, a real estate investment trust focusing on retail malls in Malaysia, has raised M$837.5 million ($268 million) from its initial public offering. It is the latest offering to price in Malaysia, which has been a bright spot for IPOs this year.

The Reit is also the latest trust to seek a listing in Southeast Asia during the past couple of months, reflecting a general investor appetite for yield amid uncertain market conditions. In Singapore, Far East Hospitality Trust, a hotel-focused Reit, raised $527 million from an IPO last month and the similarly focused Ascendas Hospitality Trust raised $364 million in its IPO in July. One source has also noted that yield plays are appealing to investors, given the low global interest rates at the moment.

IGB Reit offered 670 million new units at M$1.25 each, which implies a distribution yield of 5.4% for 2013. The final price is the same for both institutional and retail investors, according to the company announcement. The deal was marketed for a price between M$1.15 and M$1.25, with an indicated distribution yield of between 5.4% and 5.8% for 2013. The listing is scheduled for September 21.

Its major comparables are CapitaMalls Malaysia Trust, Pavilion Reit, and Sunway Reit. They are all listed in Kuala Lumpur and yield between 5.1% and 5.5%, according to Bloomberg data.

The yield and the fact it was a Malaysian IPO were some of the biggest attractions for investors, sources said on Friday. More than 200 investors had indicated interest and the institutional tranche was more than 30 times covered, one source said.

IGB Reit’s initial property portfolio will comprise two major retail malls in Malaysia: Mid Valley Megamall and The Gardens Mall. The malls have a combined net lettable area of more than 2.5 million square feet and are part of Mid Valley City, which is one of the biggest mixed-use developments in the country, according to a draft prospectus filed last month.

IGB Reit will also have the biggest retail property portfolio among the listed Malaysian Reits, according to the draft prospectus. Its large asset base will allow it to raise capital in bigger amounts to fund future acquisitions, the trust said.

The prospectus also noted that IGB Reit is sponsored by IGB Corporation, which is one of Malaysia’s biggest owners and managers of investment properties by market capitalisation and asset value. The company has diversified interests worldwide.

About 70% of the IPO, or 469 million units, was offered to institutional and other selected investors, while 201 million units, or the remaining 30%, was sold to the Malaysian public and eligible directors and employees. There is no greenshoe option.

In terms of earnings, IGB Reit expects to book M$108.7 million in distributable income this year and it is expected to rise to M$230.5 million in 2013, according to the prospectus.

Malaysia has hosted some big IPOs this year. In June, Felda Global Ventures, a Malaysian government-owned agricultural commodities company, raised $3.1 billion from its IPO to become the world’s second-biggest offering this year after Facebook’s $16 billion IPO. Felda was followed by hospital operator IHH Healthcare, which raised $2 billion in July. Pre-marketing is also under way for Astro Malaysia Holdings, a consumer media entertainment group that is aiming to raise about $1.5 billion to $2 billion from its IPO.

The FTSE Bursa Malaysia KLCI Index ended Friday’s trade up 0.4%, bringing its year-to-date gain to about 6%.

CIMB, Credit Suisse and Hong Leong Investment Bank are joint global coordinators for the deal. They are also joint bookrunners together with Citi, DBS, Deutsche Bank, Goldman Sachs, HSBC, J.P. Morgan and Maybank.

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