A $532 million IPO for Malaysian satellite operator Astro was completed on Saturday after building up an order book that seemed in danger of running away with itself. Under the lead management of CIMB, DBS, Goldman Sachs and UBS, the company attracted demand of just over $8 billion for its 505.8 million share offering. And while many accounts undoubtedly inflated orders to try and ensure a decent allocation, the final tally still represents a staggering 29 days trading volume on the Malaysian Stock Exchange and 11.5% of market capitalization.
A foreign institutional tranche of 325 million shares closed 15.9 times covered after amassing an order book of $5.5 billion. Global tier 1 accounts alone covered the book seven times over and there were said to be 10 separate orders for more than $100 million each.
The domestic institutional tranche of 100 million shares similarly attracted strong demand and closed 19 times covered on an order book of $2.03 billion. Finally, the domestic retail offering for 80.8 million shares had a subscription tranche, which closed 7.2 times covered and a public tranche, which closed 9.2 times covered.
Such heady demand marks a hugely successful result for a company, which has yet to record its first profit. It also represents the first benchmark IPO this year, which has not had to be sweetened with a generous dividend pay-out ratio and as such, symbolises a turning point for the primary Asian equity markets as investors turn from yield to growth plays.
Astro's offering comes after three weeks of heavily oversubscribed offerings from Taiwan and many may conclude it has become caught up in the same momentum-driven buying frenzy, which has seen valuation considerations slip out of the back door.
Pricing came towards the top end of the M$3.42 to M$4.22 indicative range, with the institutional tranches priced at M$4.06 and retail tranches at M$3.65 (the result of a 10% discount). Final allocations will see foreign institutions receive 64% of the offering, domestic institutions 20% and domestic retail 16%.
Market conditions aside, much of the deal's success can be attributed to the pulling power of the Usaha Tegas group run by long standing Mahathir associate Ananda Krishnan. The group is renowned for its impressive corporate governance track record and Astro is likely to boost this further.
Indeed, although the foreign institutional tranche was still 15 times covered at the very top end of the range, the company decided to underscore a long-term relationship with investors by leaving some upside on the table ahead of the stock's listing on October 29.
The deal's distribution figures further show that a lot of foreign money is flowing back to Malaysia. Over 200 investors participated in the foreign institutional tranche and about 50% were said to be returning to the country after a number of years. By geography, the book split 59% Asia, 21% Europe and 20% US.
Less than 30% of funds had also bought Maxis, the group's cellular arm, which listed just over a year ago at M$4.85 and has performed particularly well this year. It closed Friday at M$8.15, up about 45% year-to-date.
Observers believe Astro could have hardly timed its deal better. The last week of roadshows co-incided with a realisation that the Malaysian stock market has lagged its regional peers and the buying interest which followed, pushed the KLSE Composite Index up 6.8% on the week and just over 20% on the year.
As a result of the deal, Astro will have a freefloat of just over 26%, leaving Usaha Tegas on 42%, government-owned investment arm Khazanah on 22% and Bumiputra trusts on 9.4%.
In describing the deal one observer concludes, "This deal has clearly attracted a huge number of investors all willing to pay a premium to gain access to a UT group company and a proxy to Malaysian consumer growth."
Because of Astro's lack of profitability, its IPO valuation appears expensive on any standard investment ratio. Against 2005 EV/EBITDA, for example, it has priced at 22.9 times and against 2006 figures, at 17.9 times.
Instead, investors needed to construct their own DCF models and consensus figures are said to have come out at about M$4.50 to M$5 per share. On this basis, Astro has priced at a 10% to 20% discount to DCF.
Against its nearest comparable, British satellite TV operator BSkyB, it is said to have priced at a roughly 10% discount based on 2006 figures.
Key assumptions include an EBIT forecast of roughly $45 million by the company January year-end and $120 million the following year. Proceeds are largely being used to pay-down debt, which will now stand at about $200 million to $250 million.
With revenues growing by 30% per year and costs essentially fixed, the company argues that all new revenue from subscribers will fall straight to the bottom line. Within two years, it says it hopes to pay a dividend.
Astro is the brand name of Measat Broadcast Network Systems Sdn (MBNS). According to its web site, it has about 1.1 million subscribers, 40 TV channels and 16 radio channels.
Alongside the four leads, co-leads are ABN AMRO, Cazenove and ECM Libra.
