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Monday, April 27, 2015

Most powerful IPO this year

FOR an initial public offering (IPO) that looked like a tough sell early on, the appetite for Malakoff Corp Bhd’s issue has grown significantly strong.
At last check, sources close to the deal say the offer has been over-subscribed by a whopping 10 times. And while the perception has been that foreign investors are staying away from the deal considering some negative perception on Malaysia such as the weak ringgit, the tide seems to have changed.
Says a banker, “Excluding the cornerstone investors, which are all local institutions, foreign buyers are taking up around 60% of the shares of the balance institutional portion”. He adds, “The recent strengthening of the ringgit has given them a boost of confidence as these investors reckon that the ringgit is at its or close to its bottom”.
The institutional tranche for the country’s largest independent power producer (IPP)
was subscribed at RM1.80 per share. The book building for the IPO was supposed to close next week but the company and its advisors have decided to end it yesterday considering the overwhelming response, sources said.
For its IPO, Malakoff is raising RM2.74bil, making it the largest IPO so far this year. The company will be issuing 1.52 billion shares or 30.4% of the company’s enlarged paid-up capital. Of the 1.52 billion shares, one billion will be new shares while the balance 520,000 are existing shares being offered for sale.
Malakoff’s 12 cornerstone investors have taken up 533.8 million shares or 10.7% of its enlarged issued and paid-up share capital. Lembaga Tabung Haji, which is among the cornerstone investors, is believed to have taken up the largest block.
The other cornerstone investors are CIMB-Principal Asset Management Bhd, Maybank Asset Management Sdn Bhd, Maybank Islamic Asset Management Sdn Bhd, Great Eastern Life Assurance (M) Bhd, RHB Asset Management Sdn Bhd, UOB Asset Management (M) Bhd, Eastspring Investments Bhd, Social Security Organisation, Kencana Capital Sdn Bhd and Corston-Smith Asset Management Sdn Bhd.
Malakoff had targeted a dividend payout ratio of not less than 70% of its profit, which translates to an estimated yield of 3.5%.The indicative offer price of RM1.80 works out to financial year 2015 enterprise value-to-earnings before interest, taxes, depreciation and amortisation (EV/EBITDA) of 8.9 times, based on an EV of RM21.9bil.
One fund manager conceded that part of the reason for the strong response to the Malakoff IPO is the current dearth of large listings on Bursa Malaysia.
Malakoff’s institutional tranche was 100% covered on the day it launched its prospectus.
“Now they just have to manage the after market. With many investors wanting the shares and the fact that Malakoff is forced to scale their orders down, hoping to keep them hungry so that a lot of take-up will be there after the IPO. All in all it has been excellent for Malakoff,” a source points out.
Acknowledging that the IPO is exposed to certain external risks, analysts say Malakoff will have to hope that the local market conditions, such as the ringgit and the price of crude oil are not volatile before the stock is listed on Bursa Malaysia on May 15.
The fluctuation of the ringgit though, will not directly affect Malakoff’s operations much, given that 96.6% of Malakoff’s revenue is derived from customers in Malaysia while the remaining 3.4% is from abroad.
However, a weaker ringgit may affect foreign investors as any depreciation in ringgit will dilute the value of their investments in foreign currency terms, especially the US dollar.
Malakoff will boast of a market capitalisation of RM9bil based on its IPO price of RM1.80, valuing the IPP at 20 times its projected net profit of RM454mil for its financial year ending Dec 31, 2015 based on consensus estimates.
Analysts estimate that Malakoff’s net profit will grow to RM590mil in 2016, driven by Tanjung Bin 4.
For financial year 2014, Malakoff posted a net profit of RM412.8mil on revenue of RM5.59bil
Meanwhile, the concerns on the delay on Malakoff’s Tanjung Bin 4, a 1,000MW coal-fired plant, has been alleviated. Malakoff has assured that it will deliver its 1,000MW coal power plant within the scheduled date of March 2016. It points out that the risk of a delay in the construction of the plant arose much earlier in 2013 and was during the initial stages of the construction.
Separately, investors may be concerned about Malakoff’s RM18bil borrowings.
A banker, however, explains that the debts are tied to the respective power plants and that the cashflows from these assets are more than sufficient to meet the debt obligations.
Analysts says the strong demand for Malakoff’s IPO could be an indication of investors insatiable appetite for energy assets. After all, Malakoff is likely to be the only large IPO this year.
The uncertainty of 1Malaysia Development Bhd’s listing of its energy unit, Edra Global Energy Bhd, which has been postponed several times, also makes Malakoff a stronger listing candidate and a preferred choice among the two IPPs.
Malakoff, which is also the largest IPP in South-East Asia in terms of generation capacity, has a sizeable portfolio of power generation assets in Malaysia, the MENA (Middle East and North Africa) region and Australia, according to Frost & Sullivan.
The market research company notes that Malakoff’s domestic effective power generation capacity from six power plants, of which five are majority-owned by its subsidiaries and one owned by its associate, is about 5,346MW. This represents 24.9% of Peninsular Malaysia’s total installed capacity.
Internationally, Malakoff owns a net capacity of about 690MW of power production and 358,850 cu m per day of water desalination facility.

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