Ranhill to return with $181m reverse listing

Two and a half years after an unsuccessful listing, the Malaysian utilities company has launched a reverse takeover of outsourcing services provider Symphony House.

Ranhill Holdings, a Kuala Lumpur-based private water and power supplier, is making a return to the domestic stock market as it seeks fresh capital for a reverse takeover of outsourcing services provider Symphony House.

The reverse listing could potentially inject some renewed life into Malaysia’s moribund equity capital market, which has not seen any deals of size since Al-Salam Reit’s $60 million listing in September last year. 

According to a term sheet sent out by joint bookrunners CIMB and Maybank, Ranhill is targeting as much as RM760 million ($181 million) through the sale of up to 50.5% of the company’s enlarged share capital to public investors.

Indicative deal terms include 375 million new shares and 100 million existing shares being marketed at a price range of RM1.20 to RM1.60 per share, plus an over-allotment option of 71.25 million shares.

The deal was launched on Monday and orders were accepted only for one business day, partly because the syndicate has conducted so-called soft marketing since late last year, according to a source familiar with the situation. Ranhill is to list on March 16 under the current timetable.

The reverse listing of Ranhill Holdings will mark the return of the business after a failed primary listing attempt in July 2013. At that time the company, known as Ranhill Energy and Resources, was forced to return $236 million that had been raised from investors after failing to comply with stock exchange disclosure rules.

According to local reports, Ranhill failed to inform investors, in a sufficiently timely manner, about a suspension notice imposed on one of its joint venture engineering and construction projects with Australian oil and gas company WorleyParsons. As a result of the incident, Ranhill pulled its initial public offering a week before the scheduled listing date.

Dividend play

When Ranhill attempted to list two and a half years ago it included its oil and gas operations as well the water and power business. But due to falling oil prices, the company has carved out the loss-making oil and gas operations in the current reverse listing attempt.

A second source familiar with the situation said Ranhill is largely a dividend yield play now with the inclusion of only the utilities business.

Syndicate analysts said in a research report that Ranhill is looking at a dividend payout of 50% to 70% of its net profit in the long term. For the 2016 financial year it is aiming to distribute 60% of its earnings as dividends.

A 60% dividend payout ratio over its estimated earnings of RM114 million this year will translate into a dividend yield of around 6.5%, representing a pickup of 258 basis points over Malaysia’s 10-year sovereign bond, which yielded 3.923% as of the end of Monday.

Ranhill derives the majority of its earnings from its water supply business. It is the exclusive source-to-tap water supplier of Johor, Malaysia’s second-most populous state. In addition it has 10 water projects in China and six in Thailand operating mostly under build-operate-transfer contracts with local partners.

While the domestic water supply operations provide a stable source of income, the China and Thailand concessions could potentially provide new earnings growth if the company forms more strategic partnerships with local project owners, according to the research report.

Apart from the water business, Ranhill also operates two power plants in eastern Malaysia’s Sabah state. It is the largest independent power provider in Sabah with a 37% market share as of the end of 2014.

Assuming pricing at the top end of the indicative price range, Ranhill will command a market capitalisation of RM1.5 billion, a slight discount to the RM1.6 billion to RM1.8 billion fair valuation range calculated by syndicate analysts.


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