Surprise placement in Starhub

Strategic investor divests stake ahead of expected end of lock-up.

Singapore's MediaCorp sold a 6% stake in local triple-play telecom operator Starhub yesterday (October 6). Originally no deal had been expected until at least October 12, as this is when a 12-month lock-up expires following the group's IPO last autumn.

However, lead managers Credit Suisse First Boston and UBS successfully sought a waiver in order to get a deal out before the stock came under short selling pressure from investors expecting an equity placement. But the lack of flexibility on timing meant the deal came against a poor market backdrop, with Asian markets trading down yesterday following the release of poor economic data in the US.

Starhub was not as badly affected as most Singapore stocks, which averaged a 2% decline and traded down just under 0.5% on the day. Over the past year it has been a spectacular outperformer, doubling from its IPO price of S$0.95.

The new deal was priced at S$1.92 per share - a 5% discount to the stock's Thursday VWAP of S$2.02. MediaCorp has raised S$245.8 million ($145 million) from the deal, which represents 32 days trading volume.

Its strategy has vindicated the decision not to sell stock during the IPO. As a result of the new deal, its stake now drops to 6%.

Pre-deal, Starhub had a freefloat of 26%, with a further 49.8% held by ST Telemedia and 9.4% by NTT. Some analysts have also speculated that NTT is a likely seller on the expiration of the lock-up.

The order book for the placement closed about 1.9 times covered, with participation by roughly 50 accounts, of which half were new to the stock. The bulk of paper was placed into Asia, although specialists report a long tail in the US.

Initially, MediaCorp had only planned to sell a 5% stake, but decided to upsize the deal once strong demand became clear. However, investors were said to have been price sensitive, leading to a relative generous discount and pricing at the wide end of a 2% to 6% discount range.

Analysts are still fairly bullish on Starhub because of its bundling strategy - the main growth driver in a mature mobile market. About 56% of revenues currently derive from its mobile operations and 27% from cable and broadband.

By the end of 2007, analysts say the latter may grow to 35%, thanks to initiatives such as the recent launch of karaoke TV.

Starhub has the twin attraction of a relatively high dividend yield (5.9% forward) and a strong growth story. It is currently valued at about 24 times 2006 earnings.