After a quiet first quarter, Singapore will see this year’s first IPO of size start trading on Thursday. Bumitama Agri, a crude palm oil producer with all of its businesses in Indonesia, saw strong demand for the IPO, allowing it to fix the price at the top of the range for a total deal size of S$221.7 million ($177 million). If that interest is any indication, the stock should trade well.
A positive trading debut, or at least one where investors won’t lose money, is important for the market as issuers and bankers hope to execute a large portion of the deals that have been accumulating in the Asian pipeline since the fourth quarter last year, particularly in Hong Kong. Some of those deals have been held up as the companies needed to update their audited financials, but others have been forced to hold off as investors have remained highly selective and skeptical towards market newcomers. After the poor performance last year, investors seem to feel that there are better opportunities among already listed companies that have the advantage of a proven track record, although trading volumes in the secondary market are still on the thin side, suggesting there isn’t that much conviction behind the share price gains year-to-date.
Hong Kong has seen only three IPOs above $100 million so far this year – all of which are still trading below issue price – and as noted, Bumitama Agri will be the first 2012 listing of size in Singapore. The largest IPO in Southeast Asia so far is the $602 million offering by Thailand-based Tesco Lotus Retail Growth Freehold & Leasehold Property Fund in early March.
In all, Southeast Asia saw $3.4 billion of equity capital markets activity in the first quarter, which was down 36% from the first quarter last year and the lowest first quarter volume since 2009, Dealogic data show. Follow-ons and block trades made up 62.2% of the total, while IPOs accounted for only 19.8%, or about $673 million.
The buzz surrounding the Singapore market perked up a bit earlier this year, though, when news reports out of London suggested that the company that owns the Formula One racing circuit is looking at a potential listing in the Lion state. The talk was that the company, which is majority-owned by private equity investor CVC Capital Partners, could raise as much as $1 billion, and thus breathe some new life into a market that has seen little IPO action since Manchester United’s much-hyped listing in September/October last year stalled. A potential Formula One IPO will not happen until later in the year, though.
The next few IPOs lining up include M&L Reit, a real estate investment trust focusing on the hospitality sector in Australia and Singapore that has been pre-marketing in recent weeks; and a Chinese auto dealership that is looking to raise as much as $500 million and may launch later this month.
Bumitama Agri sent positive signals about demand, but headline numbers talking about a 30 to 40 times subscription ratio of the international placement tranche was inflated by the fact that 42% of the deal was taken up by six cornerstone investors, while another 5% went to retail investors. And since the deal was quite small to begin with, that left only about $94 million worth of shares to allocate between other investors. On top of that, the issuer also wanted shares allocated to specific corporate-type accounts, reducing the pool for financial investors even further.
As a result, more than half of the close to 190 investors who submitted orders got no allocation at all. This could help support the stock when it starts trading, assuming the investors who failed to get any shares or who were scaled backed significantly decide to pick up shares in the secondary market instead.
Aside from a lack of stock to go around, investors also clearly liked the company, which appears to have been partly due to them having confidence in the management – Bumitama Agri is part of Malaysia’s IOI Corp, which is one of the largest palm oil players globally with operations ranging from plantations to palm oil refinery and processing – partly because the IPO coincided with a run-up in crude palm oil prices since mid-February.
Bumitama Agri’s palm trees are also still quite young, which means they have yet to reach peak production levels, suggesting the company is well positioned for strong growth the years ahead.
The deal comprised 297.57 million shares, or 16.9% of the share capital, with 91.9% being new shares sold by the company. The shares were offered at a price between S$0.675 and S$0.745 and priced at a top of the range just before the Easter holidays. There was said to have been hardly any price sensitivity in the order book. There is a 10% overallotment option of all secondary shares, which could increase the total deal size to about $195 million.
The company will use the majority of the IPO proceeds to cover capital expenditures related to the expansion and development of its uncultivated land bank and the further development of its existing oil palm plantations. A smaller portion (S$12.6 million) will be used to repay a shareholder loan.
As noted, 42% of the base deal, or about $74 million were bought by six cornerstone investors: Asdew Acquisitions, Hwang Investment Management, Target Asset Management, UOB Asset Management, Value Partners Hong Kong, and Wii, a vehicle that is wholly-owned by Malaysia-based palm oil producer Wilmar International.
According to a source, a large portion of the international portion went to global long-only funds, while the rest was split between global hedge funds and some high-net-worth individuals.
The IPO price values Bumitama Agri at 11 times this year’s earnings, based on the bookrunner consensus. That compares with an average 11.8 times for other palm oil companies that are listed in Singapore and 10.8 times for the Indonesian palm oil producers. The Malaysian palm oil sector, including IOI Corp, trades at an average 2012 price-to-earnings multiple of 15.7.
DBS and HSBC were joint bookrunners for the deal.
