Viz Branz cancelled its initial public offering on Thursday after the company’s owner, Ben Chng Beng Beng, decided he was not prepared to accept a valuation at the very bottom of the price range.
The transaction's demise is likely to be viewed as a disappointment in Singapore, where it would have added some diversification from the real estate investment trusts and oil services companies, which dominate the new issue market.
Specialists commented that joint global co-ordinators Credit Suisse and Maybank Kim Eng had enough orders to execute the deal, but the whole order book was price-sensitive and at the very bottom of the S$0.58 to S$0.65 indicative range.
They added that investors were not prepared to budge on price because of uncertainties relating to the company's operations in Myanmar. Back in 2014, the country accounted for 21.9% Viz Branz revenues.
But its local manufacturing and distribution agreements have undergone a number of changes since then. And in the three months to end-September, Myanmar only accounted for 10% of revenues.
Viz Branz is setting up a new joint venture in the country, in which it will have a controlling 80% share. But this has not yet received government approval, making future profitability uncertain.
As one observer commented: "Investors didn't feel they really understood the future shape of the group's operations in Myanmar and consequently didn't ascribe any value to that part of the business.
"Chng doesn't actively need the money right now," the person continued, "so he decided to cancel the IPO and intends to come back when the Myanmar joint venture has started to prove itself and generate sales."
At S$0.58 per share, the IPO would have netted proceeds of S$190 million ($134 million) pre greenshoe based on a base offer size of 328 million shares. The greenshoe would have added a further 15%.
On this basis, Viz Branz would have had a market capitalization of S$480 million ($339 million) pre greenshoe and a valuation of 13.5 times 2018 earnings based on syndicate profit forecasts.
This would have represented a roughly 20% discount to the very bottom end of the syndicate's 2018 fair value estimates of S$617 million to S$763 million ($437 million to $540 million).
In their pre-deal research, syndicate analysts pitched 2018 fair value on a range of 17 to 21 times earnings, in line with other comparables such as Singapore-listed Super Group. The latter is in the process of being acquired by Jacobs Douwe Egberts of the Netherlands.
On its last undisturbed trading day on October 3 last year, Super Group was trading at 16.33 times forecast 2018 earnings according to Daiwa’s estimates. Even a very rough back-of-the-envelope calculation, based on the performance of the Straits Times Index since then (up 11.9%), suggests Super Group might now be trading around 18.3 times 2018 forecast earnings.
At this level, it would have been trading in the middle of the pack where comparables with an Asean footprint are concerned.
Viz Branz’ IPO valuation was also lower than the level the group was taken private at in September 2013.
According to S&P Global Markets Intelligence, Chng purchased a 38.25% stake from his father and founder, Chng Khoon Peng, for S$110 million ($78 million) and then launched a mandatory general offer for 41.91% of the company giving him full ownership.
Credit Suisse was financial advisor for the take private deal, which was struck at 16.4 times forward earnings and a forward EV/Ebitda multiple of 8.8 times.
This deal followed a family dispute, which saw the father step down as executive chairman.
In a twist of fate, which has come back to haunt the IPO, Chng senior went on to lodge a complaint with Singapore’s Commercial Affairs Department alleging irregular payments between his son and the company’s two local distributors in Myanmar. The complaint was subsequently and unreservedly withdrawn, but it led auditor Ernst & Young to decline to offer an opinion on Viz Branz 2012 accounts.
The company now has a core portfolio of 10 brands including Gold Roast, Cafe 21, Royal Myanmar and Madame Kim. In 2016, instant cereal mix accounted for 54% of revenues, instant coffee 17% and instant tea, 1.4%.
By country, China was the most important country accounting for 64% of 2016 sales, followed by Myanmar on 17%, Cambodia 6% and Singapore 5%. Other countries accounting for 9% include Lebanon, Liberia and Taiwan.
Had the IPO gone ahead, institutions would have been allocated 39.6% of the enlarged share capital, retail 1.8% and a cornerstone investor – Affin Asset Management – a further 4.6% of the enlarged.
