Parkson Retail Asia is set to raise S$138.2 million ($109 million) from its Singapore initial public offering after fixing the price just above the bottom of the range. The company, which is an operator of department stores in Malaysia, Vietnam and Indonesia, still has to complete the retail offering, but with the institutional portion multiple times covered, that won’t have any impact on the overall deal size.
According to a source, approximately 65 investors participated in the institutional tranche, which accounted for 92.6% of the deal. About two-thirds of the demand came from long-only funds, which shows that funds do have capital to invest. The fact that Parkson Asia is a spin-off from Malaysia-listed Parkson Holdings, and thus already familiar to many investors, may have made them more comfortable about putting money into a market newcomer, but the recovery in secondary markets over the past couple of weeks also seemingly increased their appetite.
Aside from the first wave of orders that had been secured pre-launch, there was a surge of demand on the final day. This late buying included US investors, who were still able to place orders as hopes increased that European leaders would be able to reach an agreement with regard to the sovereign debt crisis. The bookbuilding finished at 5pm New York time on Wednesday.
The final order book included global long-only investors and hedge funds as well as Southeast Asia-based accounts and was said to be of good quality. However, there was a lot of price sensitivity at the lower end of the price range.
As a result, the price was fixed at S$0.94 after being offered in a range between S$0.93 and S$1.07. The final price translates into a price-to-earnings ratio of 13.7 times for Parkson Asia’s current fiscal year to June 2012, which compares with 14.3 times for Parkson Holdings for the same period. Hong Kong-listed Parkson Retail Group, which is also majority owned by Parkson Holdings and operates department stores in China, closed yesterday at a 2012 P/E multiple of 16.1 times.
And Parkson Asia is coming at an even greater discount to other Southeast Asian retail stocks like Dairy Farm, Thailand-based department store operator Robinson, and Indonesian retailer Mitra Adiperkasa, which trade at 2012 P/E ratios of between 19 and 21 times. Converted into a calendar year, Parkson Asia is valued at a 2012 P/E multiple of 12.5.
The deal’s reasonable price clearly helped support demand, but sources say the management also did a good job of generating orders from their one-on-one meetings with investors. And from an execution point of view, the bookrunners had a substantial shadow book in place at launch that made other investors more confident to look at the transaction.
Investors also like the retail sector since it is driven primarily by domestic spending and therefore is seen to be less affected by the potential of a global recession.
Parkson Asia was the second biggest department store operator in Malaysia at the end of last year with 36 stores, according to Euromonitor. It also has seven stores in Vietnam and earlier this year it acquired Centro Retail in Indonesia, which added six Centro-branded department stores and one supermarket to its portfolio for a total of 49 department stores and one supermarket. It is aiming both to expand its existing store network in these three countries and to enter other countries with strong growth potential and will use about 87% of the net proceeds, or S$60 million, for this purpose. Its first department store in Cambodia is currently under development and is expected to open in 2013.
“Parkson has established itself as a retail player in high growth economies in Southeast Asia. The proposed listing on the [Singapore Exchange] will provide the platform for us to expand our operations further and leverage on the growing retail demand in Asia,” Alfred Cheng, Parkson Asia’s group managing director said in a release issued yesterday.
Among the company’s key strengths listed in the prospectus are the Parkson brand name, its extensive network of stores in prime and strategic areas, a stable and long-term relationship with its concessionaires and suppliers and its loyalty programmes. It also has an asset-light business strategy with most of its sales generated by concessionaires and most of its stores being leased on a long-term basis.
The IPO comprised 147 million shares, or 21.7% of the share capital. The majority of the shares, or 80 million, were new shares while 67 million were existing shares sold by Parkson Holdings and Mitra Samaya, a private investor that owned 9.9% of the company before the IPO. Parkson Holdings will own 70.5% at the time of listing, while Mitra Samaya’s stake will drop to 7.8%.
The offering comes with a 15% greenshoe that could increase the total deal size to $125 million. If it is exercised in full, the parent company’s stake will drop to 67.6%.
The shares will start trading on November 3. HSBC is global coordinator for the offering and a joint bookrunner together with CIMB. CLSA is a co-lead.
The fact that Parkson Asia’s IPO was multiple times covered is likely to encourage more listing candidates to at least test the waters, bankers say. Especially since global equity markets reacted positively to the fact that European leaders were able to prevent a Greek default with a last minute agreement — although as noted elsewhere on our website today, a lot of details still need to be sorted out and analysts argue that the European debt crisis is by no means over.
And even in a tentatively rising market, investors remain highly selective in terms of where they put their money. A clear example of this came yesterday when it emerged that Zhong Da Mining had called off the pre-marketing for its Hong Kong IPO after just three days. A source said the intention had always been to quietly test the market to see if there was any demand and make a decision after a few days whether to proceed or not. The quick postponement suggests they saw no chance of building a trade right now. The Chinese iron ore miner was aiming to raise between $225 million and $275 million with the help of CCB, HSBC and UBS.