The Singaporean government has agreed to sell a third of its holding in Singapore MRT pretty cheap, pricing the 492 million shares on offer at S$0.61 each û the upper end of a fairly low range.
"The market capitalization of SMRT is a bit smaller than originally was expected û they are now talking about a S$900 million [$236.8 million] company. Initial projections had valued SMRT at S$1 billion, perhaps a little more," says John Casey, transport analyst at SG Securities in Singapore.
Indeed, recent valuations by DBS Securities and Credit Lyonnais Securities Asia (CLSA), two of the four investment banks arranging the SMRT sale, valued the company at S$1.1 billion to S$1.2 billion.
The decision to sell SMRT relatively cheaply reflects concerns that investors' interest in future Singaporean privatizations may die down if they are saddled with yet another loser; the shares of all three state-owned companies to have held initial public offerings (IPO) since the beginning of May are currently trading below their issue prices.
Singapore Airlines' units Singapore Airport Terminal Services Group (SATS) and SIA Engineering were trading this morning at S$2.20 and S$1.97, respectively, having been launched in early May at S$2.50 and S$2.05. Singapore Press Holdings' AsiaOne subsidiary, which came to the market in June, was trading at S$0.515, down from an issue price of S$0.60. The Straits Times Index at around the 2,100 mark is little changed from where it was at the time SATS and SIA Engineering commenced trading, and is slightly up from levels seen when AsiaOne listed.
Don't rock the boat
To test investors' pain thresholds further might cause pricing problems for the forthcoming privatizations of PSA Corp and Singapore Power, which are together expected to raise $3 billion to $5 billion. By contrast, the SMRT sale is raising just S$300 million before expenses, though this may rise to S$345 million if a greenshoe option in respect of an additional 73.8 million existing shares is exercised.
The S$0.61 a share price for SMRT represents 7.9 times earnings for the year ended March 2000 and 11.2 times those projected for the year to March 2001. Net profit is set to drop sharply this year as SMRT has to use its S$400 million cash pile to make substantial payments to the Singaporean government. In the last financial year, interest and investment income accounted for S$75 million, or 65%, of SMRT's net profit.
Aberdeen Asset Management Asia managing director Hugh Young says: "SMRT looks like a solid, cheap utility." Although cheap, SMRT's shares are unlikely to deliver sharp gains straight away, owing to the company's relatively unexciting growth profile. "It doesn't have the feeling of a hot issue, which is good for us because we should be able to pick some more up cheap [in the secondary market]," Young adds.
The 270 million shares earmarked for placement with institutional investors were six times subscribed. Of the remaining shares on offer, 209.5 million shares will be sold to Singaporean retail investors and 12.5 million to SMRT's directors and employees.
UBS Warburg and DBS Securities arranged the share sale, with assistance from CLSA and Nomura Securities.