Petronas marine engineering unit completes $659 million float

Malaysia Marine and Heavy Engineering, a builder of rigs for the offshore oil and gas industry, including floating structures converted from crude carriers and tankers, has raised about M$2.04 billion ($659 million) from its initial public offering after pricing the deal at the top of the offering range.

Investors flocked to the deal partly because of a desire to get exposure to Malaysia and Southeast Asia, which is the best performing region in Asia year-to-date. With a 17% gain, Malaysia is lagging the region’s top performers like Indonesia (+42%), the Philippines (+38%) and Thailand (+36%), but the benchmark index reached a 35-month high last week and analysts are positive on the market.

At the final size, this is the largest IPO in Malaysia this year, ahead of Sunway Real Estate Investment Trust’s $459 million offering in June, giving investors a good opportunity to get exposure at a meaningful size. Add to that the fact that Malaysia Marine is owned by MISC Bhd, the energy shipping and logistics subsidiary of state-owned oil and gas giant Petronas Nasional and it isn’t hard to see why investors were keen to buy in.

According to sources, the institutional portion of the deal, which accounted for 55.7%, was 27 times covered and attracted about 130 investors. The order book was described as being “very high quality” and said to include major domestic long-only institutions as well as tier 1 international accounts and regional funds. Momentum funds, or so called “fast money” funds, were not that prevalent, they said.

Most of the early orders came from domestic investors, which helped create the necessary momentum in the bookbuilding. But several international investors put in hefty orders as well.

There was no split between domestic and international institutions at the bookbuilding stage, but after allocation, approximately 65% of the deal went to domestic accounts, while international investors ended up with about 35%. Once source noted that some international accounts were scaled back quite significantly, although it is difficult to tell yet whether this will lead to more buying when the shares start trading on October 29, or whether these investors will sell on the basis that they didn’t receive enough to build a meaningful position.

Malaysia Marine sold 146 million shares to institutional investors at a price of M$3.80 apiece after offering the shares in a range between M$3.61 and M$3.80. The final price translates into a price-to-earnings multiple of 16.3 for the fiscal year to March 2011, which marks a slight discount to Singapore-listed Sembcorp Marine, which trades at about 17 times next year’s earnings. However, it did come at a premium to Keppel Corp, which trades at 14 times. However, aside from its marine and offshore unit, which is a direct competitor to Malaysia Marine, Keppel also has other businesses, such as infrastructure and property development as well as an investment unit. Both comps were trending higher while Malaysia Marine was on the road marketing its IPO.

Aside from the institutional tranche, the company also sold 184 million shares under a Bumiputera offering targeted at native Malays, while 78 million shares were earmarked for retail investors at a discounted price of M$3.61 per share. It also issued 128 million shares to Technip -- a French company active within project management, engineering and construction for the oil and gas industry, and operations in 48 countries, including Malaysia. Coming in as a strategic investor, Technip paid a 2% premium to the M$3.80 IPO price and agreed to a three-year lockup. It will hold 8% of Malaysia Marine at the time of listing.

Together, the different tranches accounted for 33.5% of the outstanding share capital. The remaining 66.5% of the company will continue to be owned by MISC, which is also listed on the Bursa Malaysia. Of the shares sold, 48.9% were new. The IPO was arranged by Credit Suisse, J.P. Morgan and Maybank.

Malaysia Marine operates three core businesses – engineering and construction, marine conversion and marine repair – from its two yards in Malaysia and Turkmenistan. The latter yard is operated and managed on behalf of Petronas Carigali (Turkmenistan), which employed Malaysia Marine as a so called EPICIC contractor (engineering, procurement, construction, installation and commission) in 2004 to service its gas development project in the Caspian Sea. This business now contributes a substantial percentage of its revenues, according to the listing prospectus.

The proceeds received from the IPO will be used partly for capital expenditures in Turkmenistan and partly for an ongoing yard optimisation programme, which was begun in 2006 and is aimed at increasing and upgrading the infrastructure at its Pasir Gudang yard in Malaysia. The programme is scheduled to be completed in 2014.

As of the end of June, Malaysia Marine had total assets of $1.4 billion and an orderbook of $1.9 billion. In the fiscal year to March 2010, it posted a net profit of M$284.1 million ($92 million) on revenues of M$6.147 billion.

The successful IPO bodes well for Petronas Chemicals which is waiting in the wings to do an IPO of its own. The company is looking to raise about $4 billion, which would make it the country’s largest ever listing – ahead of mobile operator Maxis’s $3.3 billion IPO in November last year. CIMB, Deutsche Bank and Morgan Stanley are global coordinators with Citi and UBS participating as joint bookrunners. The banks are currently busy doing investor education with the formal marketing scheduled to kick off in the middle of next week.