Malakoff prices IPO at top

IPP powers through with IPO thanks to strong support from domestic institutions.

Malakoff Corporation Berhad, South East Asia's largest independent power producer (IPP), has priced its initial public offering at the top of the range after receiving strong support from domestic institutional investors.

Including the greenshoe, Malakoff has raised M$3.15 billion ($866.5 million) from the deal, making it the second largest equity offering of the year from South East Asia after Thailand's Jasmine International's $1.1 billion IPO. 

However, while foreign institutional investors did participate more strongly than had been anticipated, the deal was largely a domestic affair. Malaysian accounts took up 82% of the 1.749 billion shares on offer including the greenshoe. Pricing came at M$1.80 per share.

The institutional order book was split between a cornerstone tranche comprising 553.76 million shares and a non-cornerstone tranche of 403.74 million shares, plus a greenshoe of 228.26 million shares. The non-cornerstone tranche, including the greenshoe, closed just over 10 times oversubscribed according to one source close to the deal.

In total 200 institutional accounts applied for shares, with an allocation split of 50% domestic funds and 50% international funds. The top 10 investors took 60% of the institutional tranche, with 80% overall going to long-only funds and 25% receiving no allocation at all. 

The final allocation split was not settled until late Thursday afternoon despite the book closing early on Monday. Sources close to the deal say this is because management had an active role in the allocation process and still had slight adjustments to make on Thursday morning. 

Foreign investors' relatively muted attitude towards Malakoff's IPO is not that surprising given they have been net sellers of Malaysian equities for over a year and particularly since last September when the ringgit starting falling against the US dollar.

In the year-to-end March, foreign investors pared back their Malaysian holdings by $917 million according to a recent research report by Credit Suisse. 

Some bankers believe there have been signs of bottom fishing since the ringgit began showning renewed vigor around the middle of April, rising 3.9% from M$3.706 to the US dollar to M$3.565.

The Kuala Lumpur Composite Index has been fairly range bound over the past month, falling 1.34% on Thursday, but up 3.26% so far this year.

But Credit Suisse thinks the equity market may come under new selling pressure. "We think that market forecasts are still too positive," it wrote. "The market still expects margins to expand and 2015 earnings to increase 6.8% year-on-year."

Catalysts for a change in analysts' sentiment include the threat of a sovereign ratings downgrade by Fitch and the impact of the country's new 6% General Sales Tax, which kicked in on April 1. The latter may hurt corporate margins and consumer spending power as prices rise. 

Uncertainties about the government's intentions towards state-owned 1Malaysia Development Berhad (1MDB) have further clouded sentiment towards the country. Over the past few years, 1MDB has expanded rapidly turning itself into the country's second largest IPP, but overleveraging itself in the process. 

Concerns about these debt levels and a potential government divestment also impacted Malakoff given both companies operate in the same sector. On Tuesday, CIMB Holdings Chairman Datuk Seri Nazir Razak urged the government, run by his brother, to settle the matter.

Speaking to reporters after the bank's AGM he said, "The reality of the problem is that if you keep it hanging there nobody is sure of the full ramifications. When people don't know they expect worse and worse and I think that's where we are today."

But Malakoff will likely appear to be a far safer haven for investors interested in the sector. A second key selling point has been its high dividend yield, which makes it one of Malaysia's more defensive stocks.

For 2015, it has been priced on a 4.6% dividend yield based on a 70% payout ratio, double Tenaga on 2.1%. 

Proceeds are being used to re-pay debt on the parent's balance sheet, a third positive where a number of investors were concerned. 

A big part of the institutional tranched comprised 11 cornerstone investors: CIMB Asset Management; Corston Smith Asset Management; Eastspring Investments; Great Eastern Life Assurance; Hong Leong Asset Management; Kencana Capital; Maybank Asset Management; Pilgrims Fund Board; RHB Asset Management; Social Security Organization and UOB Asset Management.

The deal’s remaining 792.5 million shares were also sold to domestic investors, with 550 million shares allocated to Bumiputera investors and 242.5 million shares to domestic retail investors and company employees according to a term sheet seen by FinanceAsia.

Post greenshoe, the deal amounts to 35% of the company's enlarged share capital, with a split of 65.7% primary shares and 34.3% secondary shares. When the stock begins trading on May 15, it will have a market capitalisation of $2.475 billion including the greenshoe.

Parent company MMC Corporation Berhad will own 36.5% down from 51%.

Joint global co-ordinators for its IPO are: CIMB, Credit Suisse, Maybank and JP Morgan. Joint bookrunners are: Bank of America Merrill Lynch, Deutsche Bank, HSBC, Morgan Stanley, Nomura and RHB

¬ Haymarket Media Limited. All rights reserved.
Share our publication on social media
Share our publication on social media