Malaysia’s Pavilion Reit prices $228 million IPO

The retail property-focused Reit attracts robust demand from high-quality, long-term investors, with almost 70% allocated to domestic players.
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Kuala Lumpur's Pavilion shopping mall
<div style="text-align: left;"> Kuala Lumpur's Pavilion shopping mall </div>

Malaysia’s Pavilion Real Estate Investment Trust is set to raise M$710 million ($228 million) from its initial public offering after fixing the price at the top of the range at M$0.90 per unit for institutional investors, according to sources.

The retail tranche, which accounts for 4.4% of the deal, was priced at M$0.88 per unit.

About 35% of the institutional portion was allocated to six cornerstone investors, which include domestic pension funds and insurance companies as well as pan-Asian insurer AIA. At the final price, the rest of the 95.6% institutional tranche was nearly 30 times covered, one source said.

The strong interest in Pavilion Reit is believed to have been underpinned by the defensive nature of Reits, which typically yield stable revenues and pay high dividends, particularly as global markets remain highly volatile.

Although the company received almost an equal amount of demand from international and domestic investors, it has allocated almost 70% to local players. The reason, the source said, is to ensure domestic support in the aftermarket as there is no greenshoe option to help stabilise the performance.

Analysts say liquidity provided by local funds tends to help deals in countries such as Indonesia and Malaysia.

In a further attempt to limit the selling when Pavilion Reit starts trading, the deal was tightly allocated. About 200 institutional investors submitted orders, but 65% of the deal went to just 15 accounts. The cornerstone investors also bought some additional units through the bookbuilding, the source said.

Aside from AIA’s Malaysian unit, the cornerstone investors include Employees Provident Fund Board, Great Eastern Life Assurance, HwangDBS Investment Management, Kumpulan Wang Persaraan and Permodalan Nasional, which are all high-quality domestic names.

Pavilion Reit, which is backed by Malaysian businessman Lim Siew Choon and his wife Tan Kewi Yong, as well as the Qatar Investment Authority (QIA), sold 790 million new units, or 26.3% of the trust. The units were marketed to institutional investors in a range between M$0.88 and M$0.90.

The IPO price of M$0.90 translates into a 2012 dividend yield of about 6.5%, according to the sources. That is roughly in line with where domestic competitors like Sunway Reit are trading. However, it is well below what telecom-focused HKT Trust is offering. The spin-off from PCCW priced its Hong Kong IPO at a 9% yield yesterday morning.

Aside from the steady yield, retail property-focused Pavilion Reit also emphasised its growth prospects through potential acquisitions and increases of rents and leasable areas at its existing properties. At the time of listing, the Reit will own a seven-storey shopping mall and a 20-storey office tower, which are both part of the Pavilion Kuala Lumpur project.

Southeast Asian stock markets, particularly the Philippines, Indonesia and Malaysia, have been outperforming their peers in Asia-Pacific this year, which likely helped shore up investor confidence in investing in the region.

So far this year, the Philippine Stock Exchange Index is up almost 2%, while the Jakarta Composite Index is down 0.5% and the FTSE Bursa Malaysia KLCI Index is down about 6%. This compares with a decline of about 20% in both Hong Kong and Japan this year.

Pavilion Reit is the fourth-largest IPO in Malaysia this year after Bumi Armada, UOA Development and MSM Malaysia Holdings, according to Bloomberg data. Ananda Krishnan-backed Bumi Armada raised nearly $890 million in a popular IPO in July, while the other two raised about $350 million and $270 million, respectively, from their IPOs in June.

Pavilion Reit will start trading on December 7.

CIMB, Credit Suisse, Maybank and QNB Capital are joint global coordinators for the offering. The first three are also joint bookrunners together with Deutsche Bank.

¬ Haymarket Media Limited. All rights reserved.
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