Maxis placement shows force is with Malaysia

The country's largest private sector placement of the past four years shows Malaysia's equity capital markets are back in business again.

A $M$1.656 billion ($387 million) primary placement for Maxis Berhad on Monday demonstrated that foreign investor confidence is returning to Malaysia after a number of difficult and scandal-plagued years. 

The 300 million-share deal for the country's largest mobile operator was a large one by domestic standards.

It not only represented the largest-ever primary placement for a Southeast Asian telecom company, but also Malaysia’s largest private sector primary placement since 2013. 

But the deal’s most striking aspect was the participation of foreign investors, which have largely been absent from Malaysian deals since the Sarawak Report began publishing allegations about state-run fund 1MDB in May 2014.

Bankers said the order book had a 50/50 split between foreign and domestic institutions, with allocations showing a slight skew to the latter. A total of 50 investors participated overall, with the top 10 allocated about 75%.

By contrast, last October's jumbo M$2.36 billion ($572 million) deal for Sime Darby saw 90% of the paper placed with domestic institutions. 

Maxis’ pricing was fixed at the bottom end of a M$5.52 to M45.75 range, representing a 6.1% discount to the stock's M$5.22 last close and a 9.2% discount to its five-day volume weighted average. 

The deal needed a large discount because of the extended market risk investors take on in Malaysia. The new shares will not be listed for seven working days: until Monday July 3. 

The rule is designed to stop short-term investors knocking the share price during the secondary market, but hinders bookrunners from building momentum during the primary. 

Many financial analysts also rate Maxis on neutral or underweight given its rich valuation at about 23.5 times forward earnings. However, the stock price has taken a hit since shortly after the company announced plans to issue new shares during its Annual General Meeting.

It has fallen 10.6% over the past month and 4.3% over the past three trading sessions alone. As a result, it is currently down 1.67% year-to-date compared to an 8.96% rise in the Kuala Lumpur Composite Index over the same period.

Bankers said investors viewed the deal as an opportunity to re-weight Malaysia again. “Most of the international accounts didn’t already hold the stock,” one banker commented.

In a recent research report, Daiwa argued that Malaysia is “still in an early stage rally” despite the fact the market as a whole is trading roughly one standard deviation above its five-year average of about 15 times forward earnings.

Most analysts agree, with Maybank recording net foreign inflows of M$10.5 billion into the equity market during the first five months of the year, compared to M$8.2 billion outflows during 2016.

The market’s average daily trading volume (ADTV) has also picked up significantly. During the first quarter, it stood at M$2.4 billion according to CIMB research, up 20% year-on-year.

On an annualised basis, this is the highest it has ever been. 2007 was the last record year when ADTV stood at M$2.2 billion.

Investors have been drawn back by GDP growth, which has outpaced expectations at 5.6% during the first quarter, driven by rising private consumption and gross fixed capital formation.

Lotte Chemical Titan is also hoping to take advantage of the market’s renewed momentum with its $1.3 billion to $1.37 billion initial public offering (pre-green shoe). Roadshows for the 740.483 million share deal began on Friday, with pricing expected on June 29. 

CIMB and Credit Suisse were joint bookrunners for the Maxis deal, which represented 3.8% of the group's enlarged share capital. 

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