CIMB, one of the leading investment banks in Malaysia, failed to sparkle on its trading debut on the KLSE yesterday closing at RM1.79, 0.04 sen higher that its listing price of RM1.75. The stock saw some initial enthusiasm from investors reaching an intra-day high RM1.90 a share before setting down at an average of RM1.79 for the rest of the day. Nevertheless, with RM225.4 million ($59 million) raised through a complicated sale process, the deal can be seen as something of a success.
Officers at the firm are said to be "relieved" that the IPO has been completed and that they "can now get back to business". The exercise will probably allow CIMB to better understand its clients that go through similar IPOs in the future.
Technically the deal was a challenge for the issuer, the lead managers - AM Merchant Bank and OSK Securities - and for the development of the market. The sale was conducted as a restricted offer for sale to minority shareholders of CIMB's parent, Commerce Asset Holdings Berhad (CAHB), and to the employees and directors of CIMB. It was the first time such an exercise had been attempted in the Malaysian market.
Applications were received for 165 million shares, a 28% oversubscription of the 129 million shares that were on offer. Each minority shareholder of CAHB was entitled to 1 CIMB share for every 8 CAHB shares they held.
The demand was generated during a roadshow of investor meetings that went through Kuala Lumpur, Singapore, Hong Kong, London, Edinburgh and Glasgow in the fourth quarter of last year. The selling agents for the foreign buyers were Morgan Stanley and JP Morgan, while 17 domestic institutions fully underwrote the deal.
The stock has been positioned as a pure play proxy on the performance of Malaysia's capital markets. Given CIMB's position as one of the best all round investment banks and securities house in the country and with Malaysia being the darling of Asian investment community, the positioning of the deal obviously made sense to investors.
In 2002, Malaysia was something of an island of hope in the otherwise beleaguered regional capital markets. The KLSE declined a modest 7% in 2002, less than most other markets in the region.
Moreover the local bond market - which CIMB traditionally dominates - has continued to perform, with robust new issue and trading volumes. However, CIMB's results during 2002 reflected the weaker market position in Malaysia compared to 2001. Indeed third quarter profit for 2002 at RM23.7 million was almost half that for the same period in 2001.
Despite that, CIMB retains its position at the top table of strong local banks. It is always involved in the important deals that come out of Malaysia, testament to its well-regarded Managing Director, Encik Nazir Razak. For instance, in 2002, the bank worked on such deals as the Maxis IPO and Tenaga's $400 million guaranteed exchangeable bond issue.
At CIMB's listing price it is valued at 1.07 times NAV and almost 11 times 2003 forecast earnings. This looks relatively cheap compared to its local and regional peers. Moreover, it looks as if the timing of the deal could have been better, given the horrific state of the global equity markets at the end of 2002.
Yet officials at the bank explain the timing by saying that it was the best time that they could offer it to investors - in other words, the stock is now cheap. The aim of such magnanimity is to ensure a loyal shareholder base while also to reward employees.
