Westports set to launch largest Malaysian IPO this year

The ports operator is aiming to raise up to $626 million, with more than 80% of the deal already taken up by domestic institutions and cornerstones.
Westports handles container shipments as well as conventional cargo out of Port Klang, a deep natural harbour that is the closest port to Kuala Lumpur.
Westports handles container shipments as well as conventional cargo out of Port Klang, a deep natural harbour that is the closest port to Kuala Lumpur.

Halfway into September and with economic data showing stronger-than-expected growth in China as well as in Europe and the US, the number of initial public offerings hitting the market is starting to pick up.

On Monday, Chinese online gaming company Forgame kicked off a management roadshow for an IPO of up to HK$1.72 billion ($222 million), making it the third company to attempt a listing above $100 million in Hong Kong since the beginning of this month.

And, according to sources, Westports Holdings will on Thursday launch what looks set to become the largest IPO in Malaysia this year. The ports operator, which count both Hutchison Whampoa and Khazanah among its current investors, will seek to raise up to M$2.03 billion ($626 million) based on the maximum price set for ethnic Malay investors.

The deals come at a time when equity investors have been moving capital out of Asean and towards North Asia and the US. Malaysia has been outperforming the other Asean equity markets in the past month, however, partly because it did not log the kind of gains that Indonesia, the Philippines and Thailand did earlier in the year, but partly also because Malaysia is not as dependent on foreign capital flows as its neighbours.

In other words, the country’s large domestic pension and insurance funds are helping to stabilise the market and make it less vulnerable when foreign investors withdraws money from emerging markets.

These same domestic funds are also giving huge support to Malaysian IPOs, which makes it possible to do large deals there even when investors shy away from IPOs elsewhere in Asia because of the market risk that comes with a drawn-out marketing process and a long delay between pricing and trading. The fact that Malaysian companies also have to set aside about 30%-40% of their IPOs for ethnic Malay investors, also referred to as a Bumiputera tranche, does exaggerate the skew towards domestic investors even further.

Westports is a case in point, with bankers saying that more than 80% of the deal will be taken up by Bumiputera accounts and cornerstones, of which most are domestic investors.

One source said there has been a lot of international interest as there is no other big listed Southeast Asian port out there. So, for investors who are interested in that sector, this is obviously worth at least a look. However, with so much of the company tied up even before launch, there will be very few shares left for international investors and, like other large Malaysian deals, it is likely to pass with flying colours – even in the face of a wider move away from emerging markets and a quite punchy price.

According to a preliminary prospectus, Westports will sell 813.19 million shares as part of the base offering. Of that, 48.2% will go to Bumiputera accounts and another 12.6% will be set aside for Malaysian retail investors. According to the source, cornerstone investors will take 285 million shares, or 35% of the deal, leaving only 33.74 million shares, or about 4.1% of the total deal, for international institutions other than the cornerstones.

Based on the maximum price of M$2.50 per share, which is the price that both the Bumiputera investors and the cornerstones have agreed to, this translates into less than $30 million worth of shares that are available for the institutional bookbuild. This could increase slightly if the stock trades well in the aftermarket and the bookrunners are able to exercise the 10% greenshoe.

The price range will not be announced until just before the start of the management roadshow and the institutional bookbuilding start on Thursday but given how little stock is left and the strong demand from domestic investors – the Bumiputera tranche is said to have been more than four times subscribed – there is little reason for the issuer not to stick with the maximum price approved by the regulators.

Part of the attraction is the fact that Westports has a strong cash flow that will support a good yield. A second source noted that, based on its committed 75% dividend payout ratio, the maximum price of M$2.50 per share translates into a yield of about 4% for 2013 and will increase to about 4.5% for 2014.

And the company actually has the ability to pay as much as 100% of its earnings as dividends, should it choose to do so. Notably, all of its near-term capital expenditure is already fully funded by debt, the source said.

In total, Westports has lined up nine cornerstone investors, of which only two are international accounts: Utilico Investments, which is an infrastructure and utility sector specialist, and emerging markets-focused fund manager Genesis.

The others are Kumpulan Wang Persaraan (Kwap), Hwang Investment Management, RHB Investment Management, Hong Leong Assurance, Employees Provident Fund Board (EPF) and the Malaysian arm of AIA. Domestic asset manager Permodalan Nasional Berhad (PNB) is also a cornerstone investor, although it is investing through the Bumiputera tranche.

Westports handles container shipments as well as conventional cargo out of Port Klang, a deep natural harbour that is the closest port to Kuala Lumpur and the second busiest port in Southeast Asia after Singapore. Westports accounted for 69% of the container traffic at Port Klang in 2012 and 34% of the container traffic in Malaysia as a whole in 2011, according to data provided by Drewry Maritime Advisors.

Its ports facilities include 25 berths, 18 of which are connected in a straight line extending to approximately 4.8 kilometres. This gives it a lot of flexibility in dealing with various sizes of vessels. It is currently in the process of adding another terminal, CT7, and has begun land reclamation and development work for two additional terminals, to be named CT8 and CT9.

The IPO will account for about 23.8% of the company and all the shares offered will be existing shares held by the controlling Gnanalingam family, Hutchison and Khazanah, Malaysia’s sovereign wealth fund. After the listing, Hutchison’s stake will fall to about 24.4%, while Khazanah will own about 5%. The Gnanalingam family will hold 46.8% through three different vehicles.

Credit Suisse, Goldman Sachs and Maybank are joint global coordinators and bookrunners for the deal, while Bank of America Merrill Lynch, HSBC and RHB Investment Bank are joint bookrunners.

Westports will be the largest IPO in Malaysia so far this year, exceeding the $309 million offering by AirAsia X in June. After a massive year in 2012 with three billion-dollar listings, the Malaysian IPO market has been quite slow this year as most issuers were reluctant to do anything ahead of the national elections in early May. And once they were out of the way, the sharp decline in global equity markets in May and June made for a challenging backdrop.

A successful deal by Westports should open the door for other listing candidates in the pipeline such as real estate developer Iskandar Waterfront Holdings and 7-Eleven Malaysia, which may raise about $500 million between them.

The ports operator was initially expected to be preceded by UMW Oil & Gas, but, according to a source, state-backed UMW last month suddenly decided to remove one of the subsidiaries from the entity that is due to be listed, resulting in a delay of the IPO by about a month.

The timing of the restructuring exercise does seem a bit odd as UMW Oil & Gas, which provides services to the oil and gas industry, did already have a well subscribed Bumiputera tranche and had lined up eight cornerstone investors, including Fidelity, Jardine Fleming and Temasek’s Fullerton Fund Management, when it decided to make the changes.

The company will have to run its financials past the auditors again before re-filing the listing documents with the Malaysian regulators, the source said. It will also likely have to re-confirm the previously received orders from cornerstones and domestic institutions. People close to the deal say it is now likely to launch in October.

Prior to the restructuring, UMW Oil & Gas was expected to raise up to $850 million. CIMB, Credit Suisse, Goldman Sachs, Maybank and Standard Chartered are working on the deal.

Forgame Holdings
Meanwhile, Forgame Holdings is seeking to raise between HK$1.36 billion and HK$1.72 billion ($175 million to $222 million) from the sale of 25% of its enlarged share capital.

The company develops and publishes online games and according to a preliminary listing document it has a fast-growing mobile games business. As of June this year, it offered 79 self-developed and licensed games on its 91wan platform and had more than 179 million registered players. The games are free, but the company makes revenues from players buying virtual items, such as weapons, to improve their in-game experience.

Forgame is selling 31.37 million shares, of which 65% are new. They are offered at a price between HK$43.50 and HK$55, which translates into a 2013 price-to-earnings ratio of 9.5 to 12 times. That puts it at a slight discount to key comparables such as US-listed NetEase and Hong Kong-listed NetDragon Websoft, which trade at 2013 P/E multiples of 12.9 and 14.1, respectively, according to Bloomberg data.

The company hadn’t lined up any cornerstone investors before launch, but one banker said the response has been good both during pre-marketing and on the first day. The institutional offering will remain open until September 25 and the listing is scheduled for October 3.

JP Morgan and Morgan Stanley are joint global coordinators and bookrunners, while CICC and Macquarie are joint bookrunners.

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