Maxis raises $3.3 billion from record Malaysian IPO

The country's largest mobile operator returns to the stockmarket without its overseas operations, attracting investors mainly as a yield play.

Maxis Berhad, Malaysia's leading provider of mobile communication services, has raised M$11.12 billion ($3.3 billion) from the country's largest ever initial public offering after pricing the deal in the lower half of the indicated range.

International investors came into the deal amid expectations that Maxis will pay a relatively high yield - the company has promised to distribute at least 75% of its net profit, although most observers expect the real payout to be much larger than that - and on the premise that it is likely to be included in several major indexes. At a market capitalisation of about $11.5 billion, Maxis will be the fifth largest stock on the Bursa Malaysia when it lists on November 19.

According to a source, the 47% institutional tranche that remained after shares were set aside for cornerstones, indigenous Malay investors (the so called Bumiputras) and retail investors, attracted over 250 accounts and was more than three times covered at the final price in fairly equal portions by international and domestic investors. A slight priority was given to international accounts during the allocation process, partly because domestic orders were said to have been somewhat inflated, saw about 60% of this tranche (equal to about 28% of the total deal) being placed outside Malaysia.

Meanwhile, Bumiputras took 16% of the offering, four cornerstones shared 27.8% after committing to buy a combined $950 million worth of shares, and retail investors were given 9.4%.

The deal accounted for 30% of the company and comprised 2.25 billion shares that were all secondary and sold by parent company Maxis Communications (MCB). The price was fixed at M$5 per share after being offered in a range between M$4.80 and M$5.50. On the final day of the bookbuilding, the bookrunners told investors that the price would not be below M$5 and if they wanted allocations they had to remove any price limits set below there.

The source noted that domestic investors were less price sensitive and the deal could have got done at M$5.20, but at M$5 the company was able to include all the high-quality international accounts that had placed orders. Retail investors were offered the shares at a 5% discount, or at M$4.75 apiece.

At M$5 per share, Maxis is valued at 15 times its 2010 earnings, based on the bookrunner consensus, or at an enterprise value-to-Ebitda ratio of 8.8 times for the same year. On a price-to-earnings basis, this puts it at a discount versus and Axiata, which were quoted at 15.7 times and 16.6 times respectively yesterday. However, on an EV/Ebitda basis the newcomer is looking less cheap compared to its two rivals, with at 7.6 times and Axiata at 7.0 times.

Axiata, the owner of Malaysia's second largest mobile operator, Celcom, edged higher during the latter part of Maxis's roadshow, which kicked off on October 23, amid the renewed focus on the sector. Yesterday's close of M$3.15 was 8.2% above the recent low reached on October 29. has been steadier over that period as a whole, adding only 1.9%.

This is the second time investors have had a chance to own Malaysia's largest mobile operator, which has about 11.4 million subscribers, translating into a 46% share of the post-paid market and 38% of the pre-paid subscriptionsThe company listed in Kuala Lumpur in 2002 under the name of Maxis Communications, but was taken private by its controlling shareholder a little more than two years ago. At that time, however, the company also included the group's international business. In fact, a key reason for the buyout was that the principal shareholder, Anand Krishnan-controlled Binariang, wanted to be able to channel the cashflow from Maxis's mature domestic business to fund the overseas expansion into India and Indonesia without having to answer to shareholders who might have preferred the money be used for larger dividend payouts.

It is a more streamlined Maxis that now returns to the stockmarket, as the international business has been left within MCB that will remain in private hands. This means, on the one hand, that investors cannot expect growth to be as high as it may have been, had the assets in those emerging markets still been part of the business, but on the other hand, that they will be exposed to less risk and should be able to receive significantly higher dividends.

Based on the IPO price and a 75% payout ratio, the dividend yield would be 5.1%. However, investors believe the payout ratio is likely to exceed 75% and there is even talk of a potential special dividend in the first 12 months. The free cashflow yield is estimated at 6.8%.

The Maxis deal is three times as large as Malaysia's previous top IPO - the $1.1 billion listing of Petronas Gas in 1995. However, the completely different exchange rate back then makes them hard to compare, bankers say. The country's second largest IPO is Maxis's own $803 million listing in 2002. For now, this deal also ranks as the largest IPO in Asia (outside the China A-share market) this year, although that is a record it is unlikely to keep for long as China Minsheng Banking Corporation is currently in the process of raising at least $3.6 billion from its Hong Kong IPO.

CIMB, Credit Suisse and Goldman Sachs are joint global coordinators and joint bookrunners for the offering, with J.P. Morgan, Nomura and UBS joining them at the bookrunner level.

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