Malaysian conglomerate Sime Darby raised RM2.36 billion ($571 million) from an after-market share placement on Tuesday, taking another step to deleverage its debt-laden balance sheet.
The company, well-known for its plantation business, sold 5% of its existing share capital through an accelerated bookbuild after the market closed.
Sime Darby sold 316.4 million shares at RM7.45 each, the top of a tight price range that only went as low as RM7.40. The company was able to achieve that price after investors placed orders worth RM6.2 billion across the range.
Syndicate bankers said there was almost no price sensitivity in the book. The deal was covered shortly after launch with all orders going in at the strike price.
The final pricing of RM7.45 represents a discount of 2.1% to the stock’s Tuesday close and a 3% discount to its five-day volume-weighted average price.
Sime Darby’s Reg S-only deal is the largest equity offering in Malaysia since Malakoff's $867 million initial public offering in May last year. By Southeast Asian standards, the deal is also chunky — it only falls behind Frasers Logistics & Industrial Trust’s S$903 million ($663 million) IPO in terms of deal size this year.
Investors were able to digest such a chunky deal partly because the transaction had been pre-sounded.
Local regulations meant that Sime Darby was required to announce the transaction early in order to get shareholder approval. It announced the deal in August, giving investors plenty of time to research the company.
Sime Darby decided to moved quickly to launch the transaction after securing shareholder approval last Friday. It benefited from a rally in Asian stocks on Tuesday after European bank woes sent shock waves through global stock markets late last week.
“Sime Darby is a large, shariah-compliant stock with strong liquidity,” said a syndicate banker. “It is a good pick for investors when the risk appetite returns.”
Similar to other Malaysian deals, Sime Darby got the majority of demand from domestic institutions. Roughly 90% of the order book was allocated to the group, which includes Malaysia’s Employees' Provident Fund and Amanah Saham Bumiputera, a trust scheme under the country’s biggest fund manager Permodalan Nasional Berhad.
Over 40 investors were allocated shares, but the vast majority was concentrated in the hands of the top 10, which got about 85% of the deal.
The strong response from investors suggests they are betting on a rebound in Sime Darby’s stock price as the company gradually reduces its debt level.
Sime Darby’s deteriorated balance sheet was largely a result of its heavily debt-financed acquisition of London-listed New Britain Palm Oil, which owns palm oil fields in Papua New Guinea. Last year, the Malaysian company paid $1.74 billion for the UK firm, around 80% of which was financed through bank loans.
The company’s total debt-to-equity level spiked to 58% immediately after the acquisition. As a result, the company’s credit rating was downgraded by Standard & Poor’s in March and by both Moody’s and Fitch a month later.
At that point, none of the analysts covering the stock had a “buy” rating.
Since then, Sime Darby has taken various measures to reduce its gearing. Apart from issuing a RM2.2 billion perpetual non-call 10 year bond earlier this year, the company has also sold some of its properties Singapore and Australia.
But the share placement is Sime Darby’s single largest fundraising — and it could help the company lower its total debt-to-equity ratio. Sime Darby had managed to push the ratio down to 45% before the transaction; the share sale could see it go to 38%, according to a banker.
According to Moody’s, the share sale can improve Sime Darby’s pro forma adjusted debt-to-Ebitda to around 3.5 times from 3.8 times for the fiscal year ended June 2016.
Improved earnings in the latest quarter have provided some upside momentum on the stock, which has been struggling since reaching its all-time high at RM9.26 in February 2015.
Sime Darby reported post-tax profit of RM1.14 billion in the quarter ended June 30, the highest in almost five years. Net profit grew over 70% each in three of its four key business divisions — namely plantation, industrial and motors, with only its property business experiencing a slowdown in earnings growth.
The company is not done with its deleveraging plans. Next, it wants to monetise its 14 industrial assets in Australia. That will be done through an asset injection into Singapore-listed Saizen Real Estate Investment Trust, the company said it a statement last month.
Maybank was the sole bookrunner of the transaction.