Malaysia’s Ranhill Energy and Resources raises $236 million from IPO

Malaysia’s Ranhill Energy and Resources has raised M$753 million ($236 million) from its initial public offering after fixing the price at the top of the indicated range.

Ranhill provides various engineering services to companies in the oil and gas sector, including refineries and petrochemical companies. It also operates two power plants and provides water supply services and wastewater treatment.

It is the second listing candidate in the past few days to price at the top and while the ability to do so depends on what valuation is implied by the range to begin with, it does indicate a greater level of investor confidence with market newcomers.

According to a source, the offering attracted more than 120 institutional investors and the 24.5% portion of the deal open to them was about 20 times covered when the order books closed on Monday. There was strong demand from both foreign and domestic investors, but the allocations were skewed towards the latter, he said.

The allocation was kept pretty tight and a number of accounts received no shares at all. A key reason for that was the small size of the institutional tranche — based on the final price it totalled no more than $58 million — and the fact that the bookrunners wanted investors to receive enough shares to make it worth their while to hold on to them once the stock starts trading. As it were, a lot of the largest orders came from domestic investors.

Another 27.2% of the deal went to ethnic Malays, or so called Bumiputera investors, and 29% was taken up by five cornerstone investors. The cornerstones were all Malaysia-based, but included Eastspring Investments, which is the Asia asset management arm of UK’s Prudential, and Hwang Investment Management, which is backed by Singapore’s DBS.

The remaining 19.2% was set aside for Malaysian retail investors and company employees and directors.

The foreign demand came mainly from long-only investors, but some hedge funds also submitted orders towards the end of the bookbuilding, people familiar with the deal said. The two bookrunners chose not to actively market the deal to investors outside Asia, although the management did meet with international investors in both Singapore and Hong Kong.

When the deal launched on July 4, Asian equity markets were still pretty volatile, which made Ranhill’s focus on the more defensive power and water sectors quite appealing. Investors were also looking at Malaysia because of its status as a low-beta market — it held up significantly better than other Southeast Asian markets during the recent sell-off but also didn’t reach the same highs as those other markets earlier in the year.

According to the listing prospectus, Ranhill derived 45.3% of its revenues in 2012 from its water and wastewater division, while another 17.4% came from the power business. The oil and gas business accounted for 37.1% of the top line.

However, the general sentiment improved during the bookbuilding and in the final few days Ranhill also attracted investors looking to raise their risk exposure by putting more money into emerging markets again, the source said.

Ranhill sold 42.3% of the company in the form of 407 million shares. Some 81.1% of the shares were new. They were marketed at an indicative price between M$1.70 and M$1.85 and priced at M$1.85.

The IPO price translates into a 2014 price-to-earnings ratio of 9.6 times.

The deal comes with an overallotment option of 36.5 million shares, or 9% of the overall deal. If exercised in full, the total proceeds will increase to about $257 million.

Even without the overallotment option, Ranhill is the second largest IPO in Malaysia so far this year after AirAsia X, which raised $309 million last month. The long-haul budget airline finished flat versus its IPO price yesterday.

Ranhill is scheduled to start trading on July 31. CIMB and Maybank were joint bookrunners for the IPO.