Mitsui subsidiary, MBK Healthcare, executed a first divestment of shares in IHH Healthcare Berhad, one of the country's largest listed stocks, on Monday.
A M$1.021 billion ($247 million) secondary share sale has come shortly after the expiry of a lock-up, which followed an initial M$829 million share placement by Malaysian sovereign wealth fund, Khazanah, at the end of May.
However, execution of the new deal was not helped by some confusion about who the vendor was after one of the bookrunners, CIMB, sent out the wrong termsheet at launch before swiftly sending out a correct version.
Timing of the offering in Asia's largest listed private healthcare provider was governed by the imminent trigger of an S$500 million ($367.62 million) exchangeable bond in October, which could result in 311.4 million shares being converted at a strike price of M$4.9023.
The ongoing overhang, combined with the group's extremely high valuation, also meant Mitsui was willing to accept at a deeper discount then Khazanah did in May when it completed a 130.3 million share deal at M$6.36 or a 1.5% discount to the stock’s then M$6.46 close.
This time round, an IHH deal was priced at M$6.20 per share, or a 3.71% discount to the stock's M$6.43 close on Monday. Bankers said all of investors’ price sensitivity had settled at this point in the range.
The five-day volume-weighted average price was M$6.4493.
Pricing was fixed just off the bottom end of an M$61.7 to M$6.37 range. Bankers said the order book was covered at launch by domestic funds, with the final book closing a couple of times covered with participation from roughly 50 accounts.
Allocations were heavily concentrated, with the top five investors receiving 60% of the deal and the top 10 investors 80%. However, May's offering had an even lumpier allocation, with the top six investors taking 90% of the deal.
Pre-deal, Mitsui owned 20% of IHH Healthcare and the new transaction represents 2% of the group’s issued share capital. It will now be subject to a new 90-day lock-up. Khazanah has a 41.2% stake.
The transaction was fairly small relative to IHH Healthcare’s average trading volume, equating to 25.3 days.
At current levels, the group is trading at a frothy 49.4 times forward earnings, but is down 14.58% year-to-date.
It has underperformed the Kuala Lumpur Stock Exchange Index, which is down 1.36% since the beginning of the year.
On Monday, IHH Healthcare outperformed the index, rising 1.4% on the day, compared to the index's 0.09% decline. However, over the previous two trading days it had fallen by a fairly sharp 3.2%.
One fund manager commented, "We liked this deal because it was a well managed government sell-down rather than a corporate selling stock and creating excessive share price movements pre-deal."
IHH Healthcare recently released second quarter results, which saw net profit increase from M$228 million to M$246.1 million year-on-year. However, this missed analysts’ expectations and most brokers currently have a hold rating on the stock.
One, which does not, is one of the placement’s bookrunners, CIMB. It currently has an M$7.30 target price.
In a recent research report, it said second quarter profitability had been hit by poor cost management in Malaysia and start-up costs in new countries.
According to UBS, IHH Healthcare has a portfolio of about 7,000 beds in 38 hospitals, with more than 3,000 in the pipeline.
Joint global co-ordinators for the placement were CIMB and Deutsche Bank.
This story has been updated since first publication to correct the name of the vendor of the deal.
