Euroweek: Asian equity capital markets round-up, April 27

Euroweek Equity capital markets round-up, April 27 2011

AIR ASIA X

AirAsia Group, the Malaysian aviation company, has taken a significant step towards listing its AirAsia X long-haul arm by inviting banks to pitch for the IPO.

This week banks started receiving RFPs for the float, which is expected to raise around US$250 to 300 million. One of the key considerations in selecting underwriters – and something the banks will be expected to pitch ideas on – is where the airline should list: Bursa Malaysia will clearly be one market, but AirAsia Group CEO Tony Fernandes is understood to be keen on a dual listing. In February he said AirAsia itself was undervalued because investors didn’t understand the model, “so we may need to go to a market which understands the business more.” Candidates will likely include Hong Kong, Singapore, London or New York.

Singapore Exchange is understood to have been in contact with the company already. The exchange is on something of a roll in terms of attracting overseas businesses to list there, after winning southeast Asia’s biggest ever IPO, HPH Trust, which opted for Singapore over its home base of Hong Kong (a decision made because Singapore offers a business trust structure). There is some conjecture that a business trust could be pitched as an idea for Air Asia X, since the structure tends to suit other transport assets like shipping and ports; however, revenues tend to be more volatile in airlines than in marine transportation, and airlines tend to need to use their revenues for expansion rather than to pay out as yield to investors. Hong Kong, London and New York will argue they are better venues through which to attract the astute international capital Fernandes wants to be exposed to.

AirAsia first announced its intention to list the business in a June 2010 statement, suggesting a public float in the second half of 2011. “This arrangement gives AirAsia X financial independence and the latitude to develop its own marketing strategy,” said Fernandes at the time. Air Asia X, launched in November 2007, “is now reaching sufficient scale economies to stand on its own instead of relying on services provided by AirAsia,” he said. The airline went on to record RM1.3 billion in revenues in 2010 and is targeting RM2 billion in 2011; airline CEO Azran Osman-Rani has said he wants 50 to 60% growth in revenue in 2011.

Shortlisted candidates are expected to be announced in June with a listing to follow later in the year. One challenge they will have to grapple with is working out how to value the airline. There are other budget airlines in Asia, such as Tiger Airways and AirAsia itself, but no other long-haul operators. The carrier has been expanding and ordered three Airbus A330-200s to serve European routes in February; they will be delivered from 2014 and bring the number of the planes on order to 28. It already flies to long-distance destinations including London, Paris and Melbourne. The airline attracted 1.92 million passengers in 2010 and is targeting 2.7 million in 2011.

TAVAN TOLGOI

The owner of Mongolian coalmine Tavan Tolgoi is believed to be on the cusp of confirming a three-sided global public offering with a simultaneous listing in Mongolia, Hong Kong and London.

Earlier this year Erdenes MGL, the state-owned company that controls Tavan Tolgoi, appointed Deutsche Bank and Goldman Sachs to lead the global IPO, with BNP Paribas and Macquarie as selling agents. Since then, the company has been considering which listing venue to go for, and appears likely to settle on all three.

The three exchanges are due to present this Friday at a meeting in Ulaan Baatar, but those close to the deal consider it highly unlikely that any of them will be removed from the deal. Instead, questions revolve around the likely role of London in the deal: a primary, secondary or GDR issue.

“It’s not absolutely decided, but it was always likely to be three-way,” says someone close to the deal. “It was always going to be Mongolia, and then London or Hong Kong or both. Hong Kong is the logical market, but given the tie-ups between Mongolia and London there was some pressure to list there as well. I’d be very surprised if it’s not all three.”

The listing, of pivotal importance to the Mongolian economy, has been cited as likely to raise anything from US$1.5 to 5 billion, with estimates now tending towards $2.5 billion. Those close to the deal expect it to list in the fourth quarter of 2011 or the first quarter of 2012.

PAKISTAN OGDC

Pakistan’s return to the international capital markets is moving closer with banks due to pitch for a landmark exchangeable bond this coming weekend.

In March, Pakistan’s Privatisation Commission invited expressions of interest for the sale of up to 10% of the shares the government owns in Oil and Gas Development Company (OGDC) through an exchangeable bond issue.

OGDC is an important company for Pakistan, particularly in capital market terms. It is the largest petroleum exploration, production and development company in Pakistan and was part of the successful privatisation program in Pakistan under previous president Musharraf. In 2003 the government sold 4.98% of ODGC in a local IPO, then sold a further 9.5% through global depositary receipts on the London Stock Exchange and a simultaneous domestic secondary offer in 2006. It has since divested more of its shares through an employee stock option scheme, which distributed unit certificates equivalent to 10.2% of shares among company employees, and today holds just under 75% of the company’s total stock.

Selling down further through an exchangeable bond is an interesting move and a new one for Pakistan, which has previously opted for depositary receipts, domestic listings and direct M&A to monetize its assets. Pakistan is understood to be hoping for up to US$500 million from the issue. The appeal of an exchangeable is that it brings in money today without creating a need to refinance it in a few years time.

The request for expressions of interest stipulated that replies had to be lodged by April 12. It is understood that it received four in consortia form: Bank of America Merrill Lynch, Barclays, Standard Chartered and KASB (which has a long-standing link with Merrill) is one; HSBC, BNP Paribas, UBS, NIB and NBP form another; Citi, JP Morgan, Credit Suisse and BMA form a third; while Nomura, Deutsche Bank and Silk Bank form a fourth.

All four were then given a formal RFP on technical and financial proposals, and are now invited to pitch on April 30 in Islamabad. It has been reported in Pakistan that at least two international bookrunners will be appointed alongside at least one local house. One complication is that the government had tried this approach once before, mandating Barclays, JP Morgan and ABN Amro (as it was then) to sell bonds exchangeable into OGDC in 2008. While RBS is not understood to be part of a bidding consortium for the new deal, both Barclays and JP Morgan are, and in different groups; on previous occasions when talk of the bond has been revived, they are believed to have reminded the government that they have already won a competitive bid for the same deal and should therefore be involved in the new one.

If the deal goes ahead – and many appear cynical that it will – it will be the first issuance by Pakistan in international markets since June 2007, and also the first since a restructuring package agreed with the IMF. Pakistan today is in more promising shape, although it continues to run a heavy budget deficit rendered far worse by floods in 2010.

HANA FINANCIAL

Goldman Sachs sold down a 3.1% stake in Korea’s Hana Financial Group on Thursday April 21 in a W322.5 billion block trade.

The sale leaves Goldman with 4.5% of the company’s stock, having held a stake since 2005. The deal was structured as a fixed price block trade at W43,000, which was a 6.5% discount to the previous closing price of W46,000.

Goldman’s sale follows Temasek selling its whole stake in the Korean bank six months earlier at a considerably lower price, raising $603 million equivalent from a sale at W33,400 per share. Goldman selling at almost 30% more per share will not help Temasek’s reputation for selling out of its financial holdings at the wrong time, following ill-timed divestments of stakes in Merrill Lynch and Barclays during the financial crisis. The rise in Hana’s share price has come while the Korean bank has sought to buy a majority stake in Korea Exchange Bank from Lone Star, a deal which is awaiting regulatory approval.

Goldman has not made a killing on Hana: it put in $520 million in 2005. It is ahead, but probably more modestly so than it might have imagined at the time of its initial investment. However it is understood to be a patient investor with its remaining stake, which is in far better shape than during the financial crisis, and the retention of an interest in the bank suggests it does not have a problem with Hana’s plans to acquire KEB.

Goldman Sachs self-led the deal.

BRIEFS

21Vianet, the Chinese internet data service provider, raised $195 million in a sale of American depositary shares on Nasdaq last Thursday, then rose 25% on its trading debut. The deal, led by Barclays, JP Morgan and Morgan Stanley, was increased in size from a planned sale of 11.5 million ADSs at $10 to $12 per share, to 12.5 million ADSs at a price of $15.

United Overseas Australia Development is preparing an IPO in Malaysia with CIMB as sole books. The deal is now pre-marketing and is expected to launch in May and raise up to US$400 million.