Taiwanese leasing firm lists in Singapore

Financial One attracts a small number of mainly specialist investors to its $168.75 million IPO, including UOB Asset Management as a cornerstone investor.
Taiwan leasing company Financial One Corporation has priced its initial public offering at the bottom of the indicated range, which will allow it to raise $168.75 million from its Singapore listing.

The company is only the second Taiwanese firm to list in Singapore, according to Dealogic data, which means it had to break a lot of new ground with potential investors. For the average investor, this was also quite a tricky deal to understand, both with regard to the companyÆs business model and its geographic spread, which resulted in quite a small number of orders. However, financial sector specialists who were willing to do the homework did see the benefits and were able to grasp the potential for future growth in Financial One's various markets û particularly China, sources say.

In the end, about 30 accounts bought into the offering, which was arranged by JPMorgan. They were quite sensitive about what they considered fair value though and it would have been difficult to price away from the bottom of the $0.75 to $0.90 range, one source notes. As the final price implies 20% upside to what JPMorgan analysts consider fair value, this essentially suggests investors got the shares at a 20% IPO discount which must be considered a pretty good deal from their point of view.

The company, which was previously known as Chai Lease, sold 225 million shares, of which two-thirds were new. The remaining third was be sold by a group of primarily directors and management shareholders. There is also an 11% greenshoe of existing shares, which could boost the total proceeds to $187.3 million. Despite the fact that the offering is denominated in US dollars, the shares will trade in Singapore dollars to ensure they become as liquid as possible.

The base deal size equalled 27% of the company and at least 95% of that will go to institutional investors. Not all of that was sold through the market, however, as UOB Asset Management agreed to come in as a cornerstone investor. The Singapore-based firm bought about 18% of the entire deal, which will give it an approximate 4.9% stake in the company at the time of listing.

As is becoming more common with Singapore IPOs, UOB will not be subject to a lock-up, but did have to commit to buy the shares at any price within the indicated range and this helped to generate momentum in the book û especially among other Singapore-based investors, the source says.

A few other institutional shareholders, who were approached as potential cornerstones did not want to make a similar commitment to buy at any price, but still submitted orders in the range of $10 million to $20 million early on during the one-week bookbuilding and helped to anchor the deal. This left a fairly small number of shares to be allocated to other investors, which may have contributed to the modest interest.

ôItÆs an inherent problem with small-caps that people say unless they can get a decent allocation they are not going to do the work,ö says one observer.

The final list of investors were said to have comprised a mix between long-only and hedge funds.

The IPO price implies a 2007 price-to-book multiple of close to 1.28 times or a 2007 price-to-earnings ratio of 11.4 times. With no real comparables, given the companyÆs much greater scale, higher growth and more diversified geographical spread than other Taiwan leasing companies, investors essentially had to base their fair value assumptions on the potential for future growth. And in that respect, the real opportunity lies in China, where the company is the only Taiwanese firm to have a license to conduct a leasing business.

Financial One moved into the Mainland in the fourth quarter of 2005 and generated about 10% of its total operating income there last year. However, a JPMorgan research report suggests that its China business could grow 10 times over the next three years. About 50% of the net proceeds from the IPO will be put to work to grow the China operations.

The company has been operating a leasing and financing business targeting small and medium enterprises in Taiwan for about 30 years which has left it with a large number of well-established relationships. About 65% of its total assets are also still located in Taiwan.

The primary strategy for its geographical expansion is to follow these domestic clients to overseas markets. In China, this currently suggests a potential market size of about 3,000 companies, of which Financial One currently supplies only about 150-200, notes one source. Eventually it aims to expand this business to domestic Mainland SMEs as well.

Aside from China this strategy has so far taken the company to Thailand, where it provides primarily auto instalment financing, and to Vietnam where it set up a business as recently as January this year. The company has a US operation that provides loans and other financing for commercial real estate to SMEs and developers.

Overall, Financial OneÆs business can be broken into six segments: leasing, instalment sales, factoring, direct financing loans, commercial real estate financing and others, which includes direct loans provided through alliances with banks and collection services. The first two segments û leasing and instalment sales - are by far the largest and generated 25.3% and 36.2%, respectively, of the total operating income last year. The company is a market leader in Taiwan in both these areas.

Instalment services are provided to individual consumers primarily for cars, and to companies for the purchase of inventory, materials and supplies within the electronics manufacturing, retail, transportation and construction industries.

The companyÆs long operating history has shown that it has the ability to weather the different stages of the economic cycle. It also implies strict credit controls and takes a conservative stance towards overdue payments among other things, which should give investors some comfort in light of its move into new markets.

ôIt is really a cross straits play,ö the source says. ôYou get the stability of Taiwan, where it is clearly the leader with a 41% market share, and you get the ability to tap into Southeast Asia with the Thailand and Vietnam businesses starting to kick in. But really the sweetener is the fact that you get exposure to China.ö

Last year, the company posted 20% growth in operating income to $213.3 million and 10.5% growth in net profit to $30.6 million.
¬ Haymarket Media Limited. All rights reserved.
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