Keppel Infrastructure Trust (KIT) raised S$525 million ($393 million) from an accelerated placement after Thursday's close, marking Singapore's first major straight equity deal of the year.
The transaction was effectively a re-IPO for the group, which has merged with CitySpring Infrastructure Trust and will begin trading as the combined entity on Friday.
Pricing came towards the bottom end of the indicative range. This was not that surprising given how aggressive it was at the tight end of the range relative to the feedback the company had received during the pre-marketing process.
There were two components to the transaction. An institutional placement of 792.85 million shares was priced at S$0.52 per unit compared to a range of S$0.51 to S$0.55.
A preferential to existing holders was priced at S$0.515 per unit compared to a range of S$0.505 to S$0.545. Unit holders will be entitled to one new unit for every 13 held as of May 28.
At S$0.52 per unit, the deal was priced at a 6.2% discount to the stock's one-day volume weighted average price of S$0.5541 on Wednesday. It represents 35.5% of the group's enlarged share capital.
Pricing implies a forward yield of 7.17%. This is tighter than the 7.5% level many funds indicated they would be interested in during the pre-marketing process.
However, it is much higher than the tight end of the marketed range, which was pitched at 6.78% to 7.31%.
As a result, the order book was predominantly driven by private banking demand in Singapore and to a lesser extent China. Both groups have been keen buyers of yield plays particularly from Singapore where dividend distributions are transparent and clear unlike Hong Kong where many issuers use leverage to give a short-term boost pay-out ratios.
Sources close to the deal report participation from about 50 accounts in total, with books closing two times oversubscribed. More than half coming from Singapore. As the deal was Reg S, there was no distribution in the US.
A couple of anchor accounts are said to have underpinned institutional participation, which accounted for less than half the book and was led by South East Asian specialists and infrastructure funds. The top 10 investors received 75% of the deal.
"There was almost no hedge fund participation," said one source close to the deal. "This is a defensive yield play."
Prior to the deal, syndicate banks had assigned a fair value of S$1.8 billion to S$2.07 billion ($1.35 billion to S$1.56 billion), equivalent to a forward yield of 7% to 8%.
The nearest comparables are Singapore's industrial reits including Hutchison Ports Trust and Asian Pay TV Trust. Hutch Ports is currently yielding 8.65% and has dropped 3.7% over the past two trading sessions, while Asian Pay TV is yielding around 8.94% and has been fairly flat.
Singapore government bonds were trading at 2.326% level on Thursday, which means KIT has offered a 484bp pick-up.
The group has said it will pay out S$145 million in dividends during the 2015 financial year, equating to a pay out ratio of 77%. This is expected to remain stable over the coming few years.
Little capital appreciation has been priced into the deal. During pre-marketing fund managers were told this would either come from M&A, or the spin-off of the group's data centre assets, which will come on stream in 2016.
The merged group has an asset value of S$4 billion and eight major assets of which 75% are in Singapore and 25% in Australia. They include: two waste incineration plants, a waste water re-cyling plant, a seawater desalination plant, Basslink, which provides an electricity connection between Australia and Tasmania, Singapore's City Gas and CityNet, which owns a fibre optic network in Singapore.
Keppel wanted to raise at least S$510 million to fund the acquisition of a 51% stake in a 1,300 MW gas fired power station called Keppel Merlimau Cogen from Keppel Infrastructure.
Joint global co-ordinators of the equity deal are Credit Suisse, DBS and UBS. Controlling shareholders Keppel Corp and Temasek will now be subject to a 12-month lock up.
