Euroweek: Equity capital markets round-up, October 8 2010

Euroweek Equity Capital Markets Round-Up, October 8 2010

MMHE

Malaysia Marine & Heavy Engineering, just a few days into the marketing for its IPO, has already demonstrated investor appetite for anything related to Malaysia’s oil and gas behemoth, Petronas.

People close to the deal say that the IPO – for which books opened on Wednesday morning – has already been fully covered, and may well have been done so at the top of the M$3.60-3.80 price guidance range. With up to 566.4 million shares on offer, the deal could potentially raise M$2.15 billion (US$692 million), making it the biggest IPO in Malaysia this year.

MMHE and its joint global coordinators and bookrunners, Credit Suisse and Maybank (with JP Morgan as bookrunner), are amid a Kuala Lumpur-Singapore-Hong Kong roadshow, ahead of pricing next Thursday. They  actually have less to sell on the road than might appear to be the case. Between 128 million and 158.4 million of the shares are reserved for the French oilfield services group Technip, a strategic investor, which has long since (somewhat oddly) committed to pay a premium of 2% to whatever the institutional IPO price is set at. A further 78 million shares will go to Malaysian retail investors, while 184 million shares are allocated to Bumiputera investors. Consequently only 146 million of the available shares will be sold to foreign and domestic institutions, equating to a maximum of RM554.8 million (US$179 million) of stock on offer to those accounts.

This has already proven straightforward to cover. MMHE is a subsidiary of MISC, which represents the marine interests of Petronas. Although four Petronas subsidiaries have been listed in the past, including MISC itself, any opportunity to gain exposure to the state-owned parent company – by far Malaysia’s most powerful and influential – tends to be swiftly taken up.

The other allocations are somewhat complicated. The Bumiputera allocation, which will be sold at the institutional price, is to “Bumiputera institutional and selected investors approved by the Ministry of International Trade and Industry”, according to filing documents. The retail offering is split into three parts: 24 million shares allocated to MISC’s shareholders in a restricted ballot; 32 million shares for the Malaysian public, of which 16 million are set aside for Bumiputera individuals, companies, co-operatives, societies and institutions; and 22 million shares for directors and employees. Complicating things further, the retail tranche will be priced at 95% of the institutional price. The routine in Malaysian IPOs now is that any of the Bumiputera allocation that is not taken up goes back into the pot for allocation to other groups, such as non-Malay retail investors. This marks a recent change in Malaysian equity practice, and comes from the very top, as part of a series of reforms implemented by prime minister Najib Razak earlier this year: previously, companies had a responsibility to find Bumiputera (ethnic Malay) investors.

The strong reception for MMHE bodes well for the listing of Petronas Chemicals, another Petronas subsidiary, which will follow MMHE to market in a bigger deal about a month later. This deal, expected to raise more than US$2 billion, will have CIMB, Deutsche Bank and Morgan Stanley as joint global coordinators and bookrunners. This, too, will combine a number of components, including cornerstone investors, an institutional offer, a retail offer and a Bumiputera allocation, though it is not yet clear how the deal will be split between these groups. Readying Petronas Chemicals for launch has been complicated and involved the merger of 22 separate companies within the Petronas group.

BLOCKS

The trend for major Asian block trades continued this week with sales of stock in Zhongsheng Group Holdings, Overseas Union Enterprise and Bumi Resources.

The bulk of recent block trades have been Chinese, and the pattern continued with a US$232 million sale of a 110 million share block in Zhongsheng Group Holdings, one of China’s major automotive distributors.

Morgan Stanley – which was also in Vodafone’s US$6.6 billion China Mobile selldown and the $1.28 billion TPG exit from Ping An last month – led the sale, by Zhongsheng’s controlling shareholder and General Atlantic Partners. Morgan Stanley was also the lead on Zhongsheng’s IPO in March, since then the stock has climbed 70%.

The block was marketed in a range of HK$16.16 to HK$16.58 and priced at HK$16.42 per share, a 4.65% discount to the last close; it was also upsized from 100 million shares. Those close to the deal reported widespread interest with asset managers particularly prominent.

Also this week, Golden Concord Asia raised S$337.4 million (US$257 million) from a sale of shares in the Singapore-listed real estate group Overseas Union Enterprise (OUE). This was another upsized deal, starting out with a base size of 83.5 million shares and then adding a further 37.5 million. Better still for the seller, it priced at the top of a S$2.70-2.80 range, a 6.7% discount to the volume weighted average price of the previous day, or 8.2% against the close.

Golden Concord is a vehicle of Stephen Riady, the chairman of OUE, better known to the world as the chairman of the Asian operations of Indonesia’s Lippo.

Bank of America Merrill Lynch, CIMB, Credit Suisse, Morgan Stanley and Standard Chartered were bookrunners – an unusually wide array of managers for a block trade.  Between them they covered the deal within an hour and ended up several times covered with more than 100 participating accounts. The deal marked a considerable improvement in sentiment since a previous attempt to launch a placement in June, alongside a convertible bond; back then, the convertible was scrapped and the placement reduced in size.

In a third share sale, Indonesia’s Bumi Resources raised US$362 million from a share sale to Credit Suisse and Raiffeisen Zentralbank Osterreich. Credit Suisse took 608.6 million shares, and RZB 760.8 million, between them accounting for just over 7% of the company. The sale came alongside a new issue of bonds to repay maturing debt – see debt capital markets coverage for more on this. It has been reported that China Investment Corporation had originally been planned to be the main buyer of the shares but pulled out of the deal after disagreeing on terms.

IPOS

With an anxious look over their shoulder at the pending arrival of AIA, several Hong Kong floats have been completed in the last week.

Midas Holdings, the Singapore-listed Chinese aluminium alloy manufacturer, listed on Wednesday after completing a secondary listing in Hong Kong, raising US$154 million through a sale of 220 million new shares. Credit Suisse was the sole global co-ordinator and joint bookrunner on the deal, with CCB International and JP Morgan joint books.

The sale of 90% new and 10% secondary shares represented 18.58% of the company’s enlarged share capital; an additional 15% greenshoe had not been exercised at the time of writing. The deal priced at HK$5.43 per share, a 6.9% discount to the previous close in Singapore or an 8% discount to the day’s volume average weighted price.

Mongolian Mining Corp raised HK$5.05 billion (US$650 million) from its Hong Kong IPO in a deal that appears to have taken away some of the sour taste Mongolia-related listings have left in Hong Kong following the disappointing performance of SouthGobi Energy Resources, which listed in January. MMC priced at the middle of a HK$6.48-7.56 range at HK$7.02, with 10% of the deal allocated to a retail tranche that was around 10 times covered, and 90% sold to institutional buyers including long-only funds, private banks and hedge funds. Citi and JP Morgan led the deal.

Oddly, MMC found itself in the market at the same time as Winsway Coking Coal, a company that it is in some ways in competition with. Part of MMC’s pitch to investors was that it would develop its own process for washing coal, in order to save costs and build efficiencies; Winsway is one of the groups that offers exactly that service to MMC and others, as well as various other logistical and transport services for coal miners.

Both deals were successful, though, with Winsway raising HK$3.66 billion (US$472 million). This struck more of a chord with retail, with the Hong Kong public offer 40 times covered, and after a clawback 30% of the deal went to this tranche. This deal, too, priced in the middle of a range, offering HK$3.25 to HK$4.50 and pricing at HK$3.70. Bank of America Merrill Lynch, Deutsche Bank and Goldman Sachs led this deal.

There’s no question, though, what the Hong Kong market is focused on now. This week more information was released about the AIA float as marketing began. The float will involve 5.86 billion secondary shares, with a 15% greenshoe; tranche split is initially expected to be 90/10 between an international placing and Hong Kong public offer, subject to a clawback; the indicative price range is HK$18.38 to 19.68, suggesting an offer size of US$13.9 billion to 14.9 billion pre-greenshoe, and up to US$17.1 billion post-greenshoe; pricing is expected on October 21; and trading settlement on October 29.