The completion of a S$684 million ($393 million) IPO for SingPost on Wednesday has exceeded all expectations, with pricing coming in at the very top end of the indicative range. And while most flotations would normally incorporate some form of IPO discount, SingPost did not have to cede a single cent even to the most optimistic end of syndicate fair value assumptions.
Company management and lead managers DBS and UBS Warburg are likely to consider this a remarkable achievement given the lack of formal roadshows and difficulties of completing any kind of equity deal in the current market environment.
The 1.14 billion share deal represents a spin-off from partially government-owned SingTel and accounts for 60% of the company's issued share capital. There is also a greenshoe for a further 9%, which could see total proceeds lifted to $450 million.
The whole book was said to have closed nine times oversubscribed, with a demand breakdown of 62% institutions, 20% POWL (Public Offer Without Listing), 14% retail (via the placement tranche) and 4% retail (via the public offering). Geographically, institutional demand split 50% Asia, of which roughly two thirds came from Singapore, 30% Europe and 20% US.
Just over 400 institutions placed orders and there were said to be six orders for more than $50 million and 35 for more than $20 million. Demand from just the big orders alone, or any single investor segment would, therefore, have been enough to cover the entire book. Indeed, observers say the book was covered by day three and four times covered as virtual roadshows swung into their second week.
Partly this can be attributed to a clever syndication strategy. Conscious that markets are difficult, the company decided to maximise distribution channels by incorporating Singapore's first POWL for Japanese investors, which was handled by Daiwa SMBC. However, for a small sized and ultimately successful deal, this made allocations far more of a headache and in the end the POWL was limited to 8.7%, with institutions allocated about 65% and retail the remainder.
The second key decision was to run a concurrent offering schedule rather than the more standard sequential offering seen in Singapore. Bankers believe that by creating competition between the placement and retail tranches, they were able to further maximise demand to the benefit of the issuer.
"We also went out with a relatively wide indicative range with the intention of generating early momentum," says one. "This meant that quite a lot of big orders came in early on, but they were generally pretty price sensitive. However, because we'd been able to generate such positive momentum, we were able to lift accounts' price sensitivity right to the top of the range as the book got bigger."
Observers also report an unusual degree of goodwill from investors because of the unique circumstances in which the company found itself. Unable to embark on formal roadshows because of concerns about SAR's, SingPost management undertook an exhausting series of nocturnal one-on-ones with investors in Hong Kong, Europe and the US. A total of 120 investors were canvassed this way, with most of Asian and European investors pitched via video conference and the US investors a mix of video conference and telephone, since a number of the smaller US funds did not have video conference facilities.
"Typically management were doing 10 one-on-ones a day," reports one banker. "This is actually a far higher number than would have been the case had they embarked on the road."
In terms of investor type, specialists say the book was less skewed towards yield players and insurance funds than had been anticipated at the outset. "There were obviously a large number of insurance funds and yield funds," says one, "but there were also lots of pension funds, asset managers, unit trusts and even hedge funds.
"What this shows," he adds, "is that all investors are looking for total return plays. They want a combination of dividend yield and earnings. And unless a company has very strong and very visible earnings, they're just not interested at the moment."
Where dividend yield is concerned, SingPost was priced at 7% on a net basis or 9% on a gross basis. This is because under Singapore's system of franked dividends, those investors who do not pay tax will receive the gross amount and the remainder will be able to claim the difference between the corporate tax rate (22%) and their own personal tax rate.
For most investors, however, SingPost will pay a fraction less than the two property Reits against which it was mainly benchmarked. On a p/e basis, it came at 10.7 times forecast 2004 earnings. This rate was used because the company's year-end falls in March.
Further down the line there is also the possibility of further issuance, given that SingTel has a policy of disposing of non-core assets and has said that it will consider its options once the one-year lock up has expired.
Alongside the lead managers, CLSA, Morgan Stanley, OCBC and UOB were co-leads.
