The Year of the Tiger may not officially start until February 14, but for people involved in Singapore's first listing this year, this may well feel like the Month of the Tiger -- worthy of at least a small roar.
The reason for that would be the strong support for budget airline Tiger Airways Holdings' initial public offering, which took quite a few market watchers by surprise, coming as it did at a time when the economic environment has pushed a large and well-established airline like Japan Airlines to the brink of bankruptcy. Under such circumstances, Tiger's short track record and aggressive expansion plan could make even the coolest of investors fasten their seatbelts and worry about air pockets ahead.
But the investor actions speak a different language. In fact, the institutional portion of the deal, which accounted for more than 90%, was four times covered and attracted more than 70 accounts, while retail investors subscribed for 21.3 times as many shares as had been earmarked for them.
The orders included some price sensitivity, however, and taking into account the views of some key institutional investors, the company agreed to fix the price at S$1.50 -- the mid-point of the S$1.35 to S$1.65 offering range. This allowed it to raise S$247.7 million ($178 million) which will be used as part payment for 50 new aircraft that will be delivered between 2011 and 2015, as well as for repayment of all outstanding short-term loans and the establishment of new hubs in addition to its three current bases in Singapore, Melbourne and Adelaide.
In a release announcing the outcome of the IPO, Tiger Airways' president and CEO, Tony Davis, said he was "absolutely delighted" with the response from both retail investors in Singapore and major global investors and he took it as "strong vote of confidence in our low-cost business model and the growth potential of the airline".
The low-cost airline, which before the IPO was 49%-owned by Singapore Airlines, sold 30% of its enlarged share capital in the form of 165.155 million shares, of which 95% were new. There is also a 12% greenshoe that could add another 19.8 million shares to the deal and increase the total proceeds to as much as $200 million.
The allocations were said to have been heavily skewed towards long only investors and the higher quality participants, with more than 75% of the deal allocated to the top 20 investors. Three-quarters of those 20 investors were long-only accounts.
The final price values the company at about 12.6 times its projected earnings for the fiscal year ending in March 2011. This puts it at a significant discount to Ryanair, which trades as of yesterday at a P/E multiple of 15.8 times, based on projections for the fiscal year to March 2011. Given Ryanair's longer operating history and track record, this makes sense.
However, Tiger Airways is coming to market at a premium to AirAsia, which according to the Bloomberg consensus forecasts trades at only 6.8 times projected 2010 earnings. Analysts who are part of the Tiger Airways syndicate have a more conservative earnings forecast for the Malaysia-based carrier, and put the company at a 2010 P/E multiple closer to 10-11 times -- still implying a premium for Tiger Airways, however.
Investors no doubt took some comfort in the fact that the company is backed by top quality companies and investors. Aside from Singapore Airlines, the company's four founding shareholders include Indigo, a US-based private equity firm that specialises in the transportation sector; Temasek through its wholly-owned subsidiary Dhalia; and Ryanasia, a company controlled by Declan Ryan who is part of the family that founded Ryanair.
Indigo was the seller of the 5% portion of existing shares in the main deal, but will remain a substantial shareholder, and Ryanasia is putting up the existing shares for the 12% greenshoe, should it be exercised.
Citi and Morgan Stanley were joint bookrunners for the IPO, with DBS acting as a joint lead manager and coordinator for the Singapore retail offering. The shares will start trading in Singapore on January 22.