Southeast Asian issuers push ahead with IPOs

OUE Hospitality Trust launches an offering of up to $481 million one day after SPH Reit hit the market, while Ranhill Energy and Resources leads a host of listing hopefuls in Malaysia and Puradelta Lestari starts to gauge the demand for Indonesia’s largest IPO this year.
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Pipeline of deals should keep Southeast Asia busy during the summer
<div style="text-align: left;"> Pipeline of deals should keep Southeast Asia busy during the summer </div>

Even though equity markets in Asia have stabilised during the past two weeks, bankers say it will be difficult to bring sizeable initial public offerings in Hong Kong until September, as the investor appetite isn’t really there for untested deals with a long lead time.

Hong Kong listing candidates that used year-end financials in their listing applications and failed to get their deals out before the end of June will also have to update their numbers before they can hit the market. This will typically take at least a couple of months.

However, that doesn’t mean that there will be no IPOs in the region this summer. In fact, several issuers in Southeast Asia have taken advantage of the recent market improvement to launch their deals, and sources familiar with the various offerings say the demand is decent — at least so far.

As reported earlier, SPH Reit, which is sponsored by Singapore Press Holdings, kicked off the institutional bookbuilding for a Singapore IPO of up to S$503.9 million ($393 million) on Wednesday this week. And yesterday, it was followed by OUE Hospitality Trust, a hotel-focused trust that is seeking to raise between S$600 million and S$613.6 million ($470 million to $481 million).

Like SPH Reit, OUE Hospitality Trust chose to hold off on launching its offering after completing the investor education and getting the approval from existing shareholders of its sponsor on June 25.

As it happened, that day turned out to be the low point for the Singapore real estate investment trust (Reit) index, which had fallen 18% in the previous four weeks on the back of fears of a cut-back in the US bond-buying programme. Since OUE Hospitality Trust decided to postpone the launch of its IPO, the Reit index has risen 5%, including a 2.3% gain yesterday after Federal Reserve chairman Ben Bernanke clarified that the US will need an easy monetary policy stance for the foreseeable future.

Bernanke’s comments sent equity markets across Asia sharply higher yesterday, but even before that, confidence among Southeast Asian issuers was clearly on the mend. In addition to the two Singapore Reits, Malaysia’s Ranhill Energy and Resources launched the institutional bookbuilding for an IPO of between M$691.9 million and M$753 million ($217 million to $236 million) last Thursday.

And on Tuesday this week, bankers started pre-marketing for an offering by Indonesian industrial estate developer Puradelta Lestari, which is expected to raise about $300 million ahead of a Jakarta listing. If successful, this will be the largest IPO in Indonesia so far this year.

Bankers are also currently trying to secure cornerstone investors for two other Malaysian IPOs in the pipeline — container terminal operator Westports Malaysia and UMW Oil & Gas, which is a spin-off from industrial conglomerate UMW. Westports, which count both Hutchison Whampoa and Khazanah Nasional among its existing investors, is aiming to raise about $500 million to $600 million, according to sources, while UMW Oil & Gas is targeting $500 million to $750 million.

Neither of these two deals is expected to lunch until late August or early September, however.

Joining the queue, Malaysian palm oil producer IOI Corp yesterday filed a preliminary prospectus with the regulators for the proposed spin-off of its property arm. The unit — IOI Properties Group — won’t be selling any shares to public investors ahead of the listing, but rather will be distributing some shares to IOI’s existing shareholders free of charge and selling another batch of shares to the same shareholders through a non-renounceable restricted offer.

Local media has earlier reported that IOI Properties will have a market valuation of at least M$12.6 billion ($4 billion).

Southeast Asia saw a 65% increase in equity capital markets activity in the first half of this year from a year earlier, according to Dealogic. The $19.1 billion raised across the region was the highest first-half volume on record and accounted for 23.5% of the total ECM volume in Asia ex-Japan, up from 18.1% for the full-year 2012.

Singapore was the busiest Southeast Asian market in the first half with $5.9 billion worth of deals, led by the $1.4 billion IPO of Mapletree Greater China Commercial Trust and the $1.25 billion sell-down by Government of Singapore Investment Corp (GIC) in Global Logistic Properties. The lion state accounted for 31% of the total ECM volume in the region. Thailand ranked second with 21%, followed by Indonesia with 18%.

Malaysia was relatively quiet by comparison as most issuers wanted to wait for the general election in early May before hitting the market. The pipeline of deals suggests that it is set to be one of the busier markets in Southeast Asia during the rest of the year, however.

AirAsia X, the long-haul arm of budget airline AirAsia, became the first Malaysian company to complete a sizeable IPO after the election when it raised $309 million in June. The stock finished flat when it started trading on Wednesday this week, but gained 1.6% yesterday.

OUE Hospitality Trusts
OUE Hospitality Trusts is sponsored by United Overseas Enterprises, a real estate company controlled by Stephen Riady, and will be listing in the form of a stapled security that will contain a Reit as well as a business trust. The latter will be dormant at the time of the listing, however, and the units will be traded as one single entity.

The Reit will have two assets in its initial portfolio: the Mandarin Orchard Singapore, an upscale hotel with 1,051 rooms that is valued at S$1.19 billion; and the Mandarin Gallery, a retail mall next to the Mandarin Orchard that features four levels of high-end boutiques, shops and restaurants and is valued at S$540 million.

OUE Hospitality is selling 52.1% of its total number of units to public investors, while the rest will be issued to the sponsor as part payment for the two assets.

According to the preliminary prospectus, the issuer has secured five cornerstone investors — Credit Suisse, Goldhill, Lucille Holdings, Splendid Asia Macro Fund and individual investor Gordon Tang — that will take up a combined 247.22 million units, or 36.2% of the total deal.

It had also lined up some additional anchor demand before yesterday’s launch and one source said the bookrunners had indicated demand for more than 50% of the deal.

The deal size has come down from the initial plan to raise about S$900 million, however, which suggests that the issuer has had to reduce its targeted valuation quite a bit to attract investors.

With approximately 681.8 million units on offer and an indicated price range of S$0.88 to S$0.90, OUE Hospitality is now seeking to raise just S$613.6 million at the top of the range. The price range implies a dividend yield of between 7% and 7.15% for 2013 and 7.3% to 7.5% for 2014.

This compares favourably to Singapore-listed Far East Hospitality Trust and CDL Hospitality Trusts, which trade at 2013 yields of 6.25% and 6.8% respectively. For 2014, they are offering yields of 6.6% and 6.9%, Bloomberg data show.

Some 56.2% of the offering will be targeted at institutional investors other than the cornerstones, while 7.5% of the units are ear-marked for Singapore retail investors.

The deal also comes with an overallotment option of up to 68.2 million secondary units, which account for 10% of the deal, or 15.7% if the cornerstone tranche is excluded. If fully exercised, the total deal size could increase to as much as S$675 million ($529 million).

The institutional bookbuilding will continue until next Wednesday (July 17) — one day after SPH Reit is due to close its order books.

Credit Suisse, Goldman Sachs and Standard Chartered are joint global coordinators for the offering. They are joined as bookrunners by Bank of America Merrill Lynch, Deutsche Bank and OCBC.

Ranhill Energy and Resources
Ranhill is active in the oil and gas sector, where it provides various engineering services to oil and gas companies as well as refineries and petrochemical companies. In addition to that, it also operates two power plants, provides water supply services and operates wastewater treatment plants.

According to a source, that gives investors a good balance between defensive utilities and growth assets in the oil and gas sector.

The deal was covered on the first day, primarily by domestic Malaysian accounts, but the source said there has been good response from international investors as well since the management roadshow moved to Singapore and Hong Kong this week. The deal, which is led by Maybank and CIMB, won’t be actively marketed to investors outside of Asia.

The institutional order books will close on Monday and the listing is scheduled for July 31.

The deal, which accounts for 42.3% of the company, is underpinned by five Malaysian cornerstones that will take up approximately 118.3 million shares, or 29% of the offering. Another 27.2% will be set aside for ethnic Malay investors (Bumiputera investors), while 24.5% of the deal will be offered to other domestic and foreign institutional investors. The remaining 19.2% will be sold to company employees and directors and to Malaysian retail investors.

In total Ranhill is offering 407 million shares, of which 81.1% are new. They are marketed at an indicative price between M$1.70 and M$1.85, which translates into a 2014 price-to-earnings ratio of 8.8 to 9.6 times.

Meanwhile, the Puradelta Lestari IPO in Indonesia is led by Citi, Macquarie and Nomura. Macquarie is the sole global coordinator.

¬ Haymarket Media Limited. All rights reserved.
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