A week before the institutional bookbuild closes for the listing of Singapore Power's Australian subsidiary, investors have already placed orders for 75% of the stock. The shares in SP Ausnet will be priced and allocated on December 7 and, as yet, Australian institutions have yet to indicate their interest.
The dual listing in Australia and Singapore has presented the joint lead managers with some interesting bookbuild dynamics. The normal practice for IPOs in Australia is to open the books just two days before final pricing. Investors are usually reluctant to show their cards prior to this process.
But with at least 15% of the shares to be listed in Singapore, the managers opened the books early to take orders from global institutions. Retail investors have also had since mid-November to bid for stock.
"Retail brokers in Singapore and Australia have already placed firm orders and global institutions bought during the Asian roadshow, so we are nearly three-quarters covered even before the Aussie institutions have put their hands up," says one source close to the deal. "Interest has been so strong from Singapore retail investors that they may end up getting scaled back."
Joint managers Morgan Stanley, UBS and DBS are placing just over a billion shares with a top end price of A$1.57 per share for the Aussie piece and S$2.00 per share for the Singapore offering. The deal will raise up to A$1.6 billion for Ausnet.
"Price tension has been created by the varying importance investors are placing on the yield component," says the source, who estimates that, when the deal closes, about 50% of the shares will be held by Australians and 50% by offshore interests. "For Singapore investors the yield of around 8% per annum for 2006 and 2007 is viewed as quite attractive, but Australian investors have more access to high dividend paying stocks. That means the Australian shares aren't likely to price at the top end of the band."
Ausnet can project distribution payments thanks to the steady income generated from its electricity transmission and electricity and gas distribution assets in the state of Victoria - an income which is determined by Australia's energy regulators. Ausnet owns and operates a 6,574 kilometre transmission network, and a distribution network supplying just over a million customers with electricity and gas.
Singapore Power, which bought the Victorian assets from US energy company TXU in April 2004, will retain a controlling interest in Ausnet, selling only 49% of Ausnet's shares in the current IPO.
With powerful backers like Temasek and the Singapore government, Singapore Power launched the IPO without underwriters. That means the lead managers are charging fees of only 175 basis points jointly for the distribution effort, and some of this is going to retail brokers. "Singapore Power just doesn't like paying fees so instead of asking for between 250bps and 300bps for the underwriting gig, the joint leads had to price low," says the source.
So far it looks like Singapore Power's bet is paying off. The deal is being helped along by the fact that the Ausnet shares are fully fungible. Unlike the shares of other Aussie companies that have dual listings, such as Rio Tinto and BHP Billiton, the Ausnet shares can be bought in Singapore and then sold in Australia, or vice versa.
The Singapore component of the deal is also being offered to investors tax free.
Ausnet's float is running at the same time as another IPO for a CKI-backed company called Spark Infrastructure. The Citigroup, Deutsche Bank and Merrill Lynch led deal closes on December 15 and is also expected to raise around A$1.5 billion. The deal is underwritten.
Investors drawing comparisons between the two offerings say the yield calculations for Spark's installment receipts are like an "optical illusion". They say while, on the face of it, Spark is offering a higher yield in the first year, investors are being asked to pay interest costs on the second installment. "Just like they had borrowed the money from CKI," says one investor.
There is also some concern that the handsome yield projection for 2007 is not backed by company-sanctioned profit forecasts for 2007.
Despite this, there seems to be enough appetite in the market to get the two deals away within a week. Australia's swelling superannuation funds are always looking for a place to park their money, and energy assets that generate consistent regulated cash flows present a compelling story.