The Government of Singapore Investment Corp (GIC) has sold about a quarter of its investment in Global Logistic Properties (GLP), raising S$1.55 billion ($1.25 billion). The fully underwritten deal is the biggest equity transaction in a Singapore-listed company since Hutchison-backed HPH Trust raised $5.45 billion from an initial public offering in March 2011.
It could be surpassed immediately, however, when Mapletree Greater China Commercial Trust prices its IPO today. The trust is seeking to raise between $1.2 billion and $1.3 billion from the base deal and as of yesterday was widely expected to fix the price at the top of the range following overwhelming demand. The real estate investment trust (Reit) also comes with a greenshoe that could increase the total proceeds to as much as $1.4 billion.
Indications last night were that the size of the GLP block was a bit ambitious and that the deal would have required a wider discount than the 5.45% that it offered in order to attract broader investor participation. As it were, the seller relied primarily on chunky orders from US long-only funds and real estate specialists to get the deal done, although there was some demand from hedge funds and other long-only investors as well, according to a source. Some existing shareholders also bought into the transaction, he added.
That didn’t seem to be enough though and most signs suggested that the deal wasn’t fully placed, leaving sole bookrunner J.P. Morgan with a bunch of unsold shares.
For one, the order books were kept open for more than seven hours to 1.30am Hong Kong time. Sources also said that the bookrunner had no anchors lined up before launch and had not sounded out investors on the deal beforehand, even though there was a lot of talk in the market yesterday about investors having been approached about a potential billion-dollar block trade over the weekend.
US markets also slumped significantly last night amid signs that parties opposed to Italy’s economic reforms were doing well in the national election, causing renewed concern about the sovereign debt crisis in Europe. And since the GLP block was kept open for so long, it did become exposed to that fear. After the order books closed, the sell-off in the US worsened, triggered by the S&P 500 index falling below a key support level at 1,500 points.
The S&P index finished the session 1.8% lower, the Dow Jones index dropped 1.5% and the Nasdaq Composite lost 1.4%. European and Asian markets were mostly higher.
As of early this morning, there was no information available on either the level of demand or the number of investors that participated in the GLP transaction. One source said, however, that J.P. Morgan was satisfied with the outcome.
Some investors may have been disappointed that GIC was selling such a big chunk of the company — the deal accounted for about 12.1% of the outstanding share capital and approximately 45 days of trading based on the average daily trading volumes in the past month. However, the source noted that others were pleased that the Singapore sovereign wealth fund had decided to do one sizeable trade, rather than pushing shares into the market at regular intervals which could have caused more of an overhang on the stock.
Investors were also told that this sale will bring GIC’s stake to a level that it considers a long-term holding, suggesting that it has no intention to return to the market any time soon. GIC is a co-founder of GLP together with current chairman Jeffrey Schwartz and CEO Ming Mei and hasn’t sold any shares in the company since it listed in October 2010. This deal will reduce its stake to about 36.8% from 48.9%, according to one source. Its remaining shares are locked up for 90 days.
GIC offered to sell 595.674 million shares at a price between S$2.60 and S$2.66, which translated into a discount of 3.3% to 5.45% versus yesterday’s close of S$2.75. Not surprisingly, given the indication of a demand shortfall, the price was fixed at the bottom of the range for the maximum 5.45% discount. The discount to yesterday’s volume-weighted average price (VWAP) was slightly narrower at 4.8%.
The discount to the latest close was slightly wider than the 4.8% discount achieved by GLP on its placement of new shares in November last year. However, that deal was significantly smaller, at $339 million. It was also intended to fund the company’s share of an acquisition of logistic properties and developments in Brazil, which it said will generate a levered internal rate of return of more than 18% after tax.
The November placement was done at a very similar price of S$2.59 per share, however. GLP’s share price did dip after that deal, but recovered again later that month as the company pushed on with the spin-off of its logistics properties in Japan through a Reit IPO. GLP J-Reit raised $1.28 billion through a successful offering and started trading in Tokyo on December 21. GLP still owns 15% of the Reit.
GLP is down 1% so far this year, but after a 1.85% gain yesterday the stock closed just six Singapore cents below its all-time high of S$2.81 that it reached on November 30. The share price is up 42.1% since early May last year.
The company has grown significantly since its listing more than two years ago and currently has 525 completed properties in its portfolio that it owns, manages and leases out. These properties are located in 194 different logistics parks across 62 cities and states in China, Japan and Brazil.
This compares to just 296 completed properties in China and Japan at the time of listing.
In the nine months to December 2012, its revenues rose 25% to $517 million, its net profit increased 20% to $460 million and its net operating cashflow jumped 82% to $373 million.
Its balance sheet also remains strong, with net debt of $3.2 billion and net debt-to-assets of just 8.7%, putting it in a strong position to continue to expand through acquisitions.
In a comment on the first nine-months of the fiscal year to March 2013, CEO Ming Mei said that demand remains strong in all of GLP's three markets: “China is seeing growth in domestic consumption, particularly in e-commerce, coupled with a backdrop of continued urbanisation. We have seen significant growth in fund fees in Japan, reflecting the strong demand for our modern facilities and the continuing rollout of our best-in-class fund management platform. Brazil is a fast-growing, underserved market with compelling opportunities for future growth.”
