Southeast Asia-focused oil and gas exploration and production company KrisEnergy will raise S$270.8 million ($213 million) from its Singapore initial public offering after fixing the price at the top of the range.
According to a source, the IPO attracted more than institutional 100 investors, including a number of accounts that submitted their orders in the final 24 hours when it was becoming clear that this was a “hot” deal. The allocations favoured investors who had shown interest in the company during the pre-marketing and roadshow, however, and the source said quite a few accounts received no shares at all.
There was also a lot of demand from company employees, directors, business associates and others who have contributed to the success of the company so far. To accommodate that interest, the portion of shares set aside for such investors (under the retail offering) was increased slightly, which meant the retail tranche grew to 8.1% of the total deal size from 6.2% initially.
The retail offering will stay open until Wednesday and the company is scheduled to start trading on Friday (July 19).
The deal, which launched on July 2, coincided with a recovery in Asian equity markets, which helped boost investor confidence in general and pushed the Singapore benchmark index 3.4% higher during the time KrisEnergy was in the market.
For this particular offering, though, the backing by Singapore’s Keppel Corp and the faith in the management was probably more important. It was also quite a unique deal in the sense that there aren’t any pure exploration and production companies listed in Asia. Meanwhile, most IPOs of size in Singapore this year have been focused on real estate. KrisEnergy offered a different kind of exposure entirely.
Temasek-controlled Keppel, which is one of Singapore’s top blue-chips with businesses across property, infrastructure and the design and construction of rigs and specialised ships, bought a 20% stake in KrisEnergy in July last year and just before the launch of the IPO it exercised a call option to buy an additional 16% from the controlling shareholder.
Keppel also participated in the IPO itself as a cornerstone investor, taking up $35 million worth of the shares.
KrisEnergy had also secured two other cornerstones before the launch — the Capital International group and Palang Sophon, a family-owned Thai investment company whose interests in the oil and gas sector include two of the producing oil fields owned by KrisEnergy. Together, the three cornerstones took up 38.2% of the shares on offer, an investment of about $81.5 million, according to a company announcement on Friday.
The large interest in the deal was still a bit surprising since the company operates in the upstream part of the oil and gas value chain, which means there are a lot of execution risks. This also makes the company quite difficult to value as there are a lot of assumptions going into the modelling. KrisEnergy isn’t yet profitable at the bottom line, although it posted an Ebitda of $35 million in 2012.
On top of that, it is the first company to list under new Singapore regulations that allow unprofitable companies in the oil and gas and mining sectors go public, making it a bit of test case. The regulations, which were worked out simultaneously with KrisEnergy’s listing application, are similar to the Chapter 18 rules in Hong Kong and bring Singapore in line with other major listing destinations such as Australia, London and China.
KrisEnergy’s business strategy is to identify and acquire upstream assets in countries and basins where the founders and technical team have extensive knowledge and experience, and develop them into producing assets. The aim is to tap into the strong demand for oil and gas globally and the fact that the demand in Asia-Pacific is far surpassing the demand in any other region, both with regard to absolute volumes and the growth rate, the company said in Friday’s announcement.
It currently has a portfolio of assets in 14 contract areas in four countries (Thailand, Indonesia, Vietnam and China) and has signed agreements to buy two additional projects in Bangladesh and the Gulf of Thailand subject to government approvals. Only three of its existing assets and the pending one in Bangladesh include fields that are already producing oil and gas. However, it intends to sell one of these, located offshore North Sumatra, shortly after the IPO. (For more details on the business, please see our previous story on July 2.)
The modest production means there is a lot of potential upside — if the management is able to deliver on its plans. And investors were clearly willing to give it the benefit of the doubt. The three founders, Keith Cameron, Richard Lorentz and Chris Gibson-Robinson, set up KrisEnergy in 2009 with the financial backing of private equity firm First Reserve Management. But before that they ran Pearl Energy, another Singapore-listed exploration and production company, and they are viewed to have a both extensive industry expertise and a strong track record of value creation.
“The KrisEnergy team has demonstrated through [its] successful track record that [it has] the required competencies, as well as the regional expertise, to maximise the portfolio’s value while further increasing production and reserves through strategically sound acquisitions,” Will Honeybourne, non-executive chairman of KrisEnergy and managing director of First Reserve, said in a written comment.
The company offered a total of 246.154 million new shares through the IPO, which account for 23.5% of the enlarged share capital. After the increase of the retail portion, 53.7% of the shares were sold to international institutions other than the three cornerstones.
The shares were marketed in a range between S$1.02 and S$1.10 and as mentioned, the price was fixed at the top.
Sources said the institutional tranche was covered within two days and was heavily oversubscribed when the order books closed last Friday morning (Hong Kong time). The investors that were allocated shares were mostly long-only funds, complemented by some hedge funds with prior experience in the oil and gas sector.
The deal comes with an overallotment option of 30.398 million secondary shares, which account for 12.3% of the total deal size, or 20% excluding the cornerstone tranche. If exercised in full, it could boost the IPO proceeds to S$304.4 million ($239 million).
First Reserve will remain the biggest single shareholder after the IPO, with a 48.3% stake. Keppel will hold 31.6% and public shareholders 19.4%. The management will own 0.7%, although it also has significant incentive packages linked to KrisEnergy’s share price, which means its interest is well aligned with that of other shareholders.
Bank of America Merrill Lynch and CLSA are joint global coordinators and bookrunners for the IPO.
