The 770 million shares were sold via Goldman Sachs at a 5% discount to the most recent close, but the share price dropped 6.4% to a close of S$2.66 yesterday following the transaction.
The shares were offered to investors in a narrow price range of S$2.66 to S$2.68, representing a discount of 4.3% to 5% to MondayÆs close. They were priced at the low end of the price range early Tuesday morning (March 21) with enough orders in the book to cover the transaction, according to fund managers.
One observer said the order amount was ôas expectedö given the sizeable offering and the fairly short bookbuilding period, but maintained the deal had been fully distributed to investors. Others argued that the discount was tight for such a large deal, especially given the strong share price run over the past four months, and may have led some investors to turn the other away.
The market had been speculating that Temasek would sell some of its shares in Singtel û one of its most liquid investments û to raise money for its recent acquisition of ThailandÆs Shin Corporation, and the narrow price range and tight discount was seen to be a direct result of heavy competition for the lead manager role. Other bidders included Citigroup, Merrill Lynch and Morgan Stanley.
About 100 accounts were said to have participated in the offering, which equaled 30 days trading volume. About 50% of the investors were believed to have been based in Hong Kong with the rest split evenly between Europe and the US.
Despite the short book building period, which would typically favour hedge funds able to make quick investment decisions, people familiar with the deal said more than half of the participating investors were long-only funds with a fundamental interest in the Singtel name.
Last month the telecom operator beat consensus forecasts by posting a 4% rise in third quarter net profit to S$778 million, which was mainly driven by a strong performance from regional affiliates.
According to a Morgan Stanley research note, the results supported its view that SingTelÆs leverage to high growth markets like India and Indonesia will offset the expected decline in its Singapore operations and the competitive challenges in Australia. The investment bank has an overweight rating on the stock and a target price of S$2.91.
The share sale, which was likely timed to make the most of MondayÆs seven-month closing high, will see TemasekÆs stake in Singtel fall to 56.3% from 61% and will increase the freefloat in the countryÆs dominating telecom operator to about 43.7%.
ôThis improved liquidity will enhance SingTelÆs institutional investor base. The additional liquidity and broader base of institutional shareholders are expected to benefit all shareholders,ö Temasek Chief Financial Officer Leong Wai Leng said in a written statement.
The investment arm of the Singapore government has a history of earlier selldowns in Singtel. The most recent sale came in November 2004 when it divested two percentage points of the company at S$2.36 per share, or a 3.67% discount to the market price.
Temasek didnÆt disclose how it will use the proceeds, but the sale comes as it continues to increase its investments outside of Singapore.
Together with Singaporean and Thai partners, it bought a 49.6% stake in Shin Corp from president Thaksin ShinawatraÆs family in January for $1.85 billion in cash. The acquisition was accompanied by a general offer for the remaining shares in the telecom operator and last week Temasek said it held 96% of the company,
Last week Temasek also bought $400 million worth of convertible bonds of E.Sun Financial Holdings which could see it buy up to 15% of the Taiwan lender by 2008.
Temasek had S$103 billion ($63.7 billion) of portfolio assets as of March 2005, according to its Web site. About 49% of those were in Singapore, although since then the company has made further substantial acquisitions outside its home market, including significant pre-IPO stakes in China Construction Bank and Bank of China.
Prior to TemasekÆs divestment, SingtelÆs share price had risen 20% from a 2005 low of $2.33 in late October, outpacing a 14.6% gain in the Straits Times index in the same period.