Euroweek Equity capital markets round-up, October 14 2010

Euroweek – equity capital markets roundup, October 14 2010

QR NATIONAL

Australians are considering the biggest IPO since Telstra floated in 1997, as QR National – which owns Queensland’s coal railway network – commences an IPO that could raise A$5 billion.

An offer document filed this week says the state of Queensland will sell between 1.46 billion and 1.68 billion shares, with a marketing range of A$2.50 to A$3 per share (with a A$2.80 ceiling for individual investors). Depending on the number of shares sold and the various final prices, the total raised could be anywhere between A$3.66 billion and A$5.05 billion. Either way, it should be enough to make QR National one of the 50 largest companies on the Australian Securities Exchange by market capitalization and potentially one of the top 30.

If the full total is sold, that will represent 69% of the company, which has a 145-year history as a rail freight operator, is the largest of its kind in the country, and is being sold as a play in growing coal and iron ore markets. Central to this is the growth of Asian demand, particularly from China and India, for resources that are mined in Queensland and use the rail network to reach Australia’s east coast ports to be shipped to Asia. Although Queensland is the heart of the network and the offering, the company is active in five Australian states and hauls containers and various minerals as well as coal and iron.

“It’s a railway, obviously, but that’s not really the pitch,” says one Australian banker. “The pitch is very much a commodity cycle story.”

Australia is wary of public sentiment towards landmark floats. The country has one of the highest proportions of individual share ownership in the world, with roughly half of all Australians having some direct share exposure, particularly through heavily retail-focused listings in the past for groups such as Telstra, the Commonwealth Bank of Australia and AMP; many Australians have automatically become shareholders in financial institutions because of allocations to bank account holders during their IPOs, for example. But Telstra in particular has gone badly for retail buyers, especially those who became shareholders in the second public float of the telco and have rarely seen the stock trade at anything like the level they bought at since.

Consequently QR National has a number of incentives for retail, including the A$2.80 maximum price, the promise of a 10 cent discount relative to institutions, guaranteed allocations and loyalty bonus shares. Queensland residents get still greater benefits.

Australia has largely missed the revival in equity issuance that has characterized the rest of Asia in recent weeks; a closely-watched IPO for Valemus, a construction company, had been expected to raise as much as A$1.4 billion but was axed in July. If QR National is successful it is expected to prompt other new issues to follow, including others from Queensland itself, which is attempting to sell other assets including a port, plantations and roads. The stock will start preliminary trading on December 1 and normal trading on December 7.

Credit Suisse, Goldman Sachs, Bank of America Merrill Lynch, RBS and UBS are managing the offering.

JUMBO LISTINGS

The many heavyweight listings heading to Asia have all made progress in the last week.

Coal India has set the price range for its initial public offering, which should be the largest ever IPO from India. The range of Rs225 to Rs245 per share, for 631.6 million shares or 10% of the government’s stake in the company, implies a total raising of Rs142.1 billion to Rs154.7 billion, or US$3.22 to US$3.5 billion. However retail investors, as well as Coal India employees, will receive a 5% discount to whatever the offer price is set at, which will modestly reduce the overall proceeds.

Formal bookbuilding begins on October 18, with the qualified institutional book closing on October 20 and retail books the next day; the deal will price on October 23. Bank of America Merrill Lynch, Citigroup, Deutsche Bank, Enam, Kotak Mahindra and Morgan Stanley are leading the deal.

The deal is attracting a great deal of excitement in India. SMC Global Securities wrote this week: “If Commonwealth Games are an answer to China’s Olympics, then Coal India IPO may prove to be the answer to Agricultural Bank of China’s $20 billion IPO.”

In Singapore, Global Logistics Properties, which is being sold by the Government of Singapore Investment Corporation sovereign wealth fund, priced at the top of its S$1.78-1.96 range, meaning the IPO will raise S$3.45 billion (US$2.6 billion) in the biggest Singapore float since Singapore Telecommunications. The institutional tranche is said to have been more than 12 times covered with 450 investors represented. The retail tranche, which will only account for 6.7% of the deal, is still open to the public at the time of writing, and a public offering without listing (POWL) is also underway in Japan. Additionally, nine cornerstone investors, as previously reported in Euroweek, have signed up for 33% of the deal. It seems likely that a 15% overallotment option will be used: if it is, the total deal size will be S$3.91 billion, getting very close to SingTel’s S$4 billion record from 1993. Citi and JP Morgan and global coordinators on this deal, with CICC, DBS and UBS as bookrunners and Nomura responsible for the POWL.

In Malaysia, investor education is underway for Petronas Chemical, which is now considered likely to raise as much as US$4 billion. CIMB, Deutsche and Morgan Stanley are joint global coordinators and bookrunners, with Citi and UBS bookrunners. Roadshows begin on October 27 and pricing should take place on November 12 with listing on November 26.

In Indonesia, all eyes are on the forthcoming Bank Mandiri rights issue, but it was confirmed this week that it will be joined by another major deal: a Rp2 trillion rights issue from Bank Permata. This deal will involve the sale of up to 1.29 billion shares, all new, at Rp1,549 each, and well be completed before the end of November. Major shareholders Standard Chartered and Astra International will take up their entitlements.

Finally AIA Group will price its jumbo deal, expected to raise US$13.9-14.9 billion even before a greenshoe is considered, on October 21.

BLOCKS

The appetite for Asian block trades and sell-downs continues. This week Khazanah, the Malaysian state investment company, sold $370 million of shares in CIMB; shareholders in Lippo Karawaci, the Indonesian property developer, raised Rp2.26 trillion ($252 million); International Mining Machinery, a Chinese coal mining equipment group, HK$1.17 billion (US$151 million); SM Prime Holdings, the Philippine mall developer, Ps6.55 billion (US$150 million); and BEC World, the Thai broadcaster, $126 million.

The Lippo Karawaci deal involved sales by five shareholders, all linked to the broader Lippo group: Alpha Consulting, Boston Investment, Meridian Investment, New Host, and PT Metropolis Propertindo Utama. They set out with a sale of 3.5 billion shares with the option to sell just over 5 billion, and ended up partially upsizing to 4.1 billion shares. The final pricing of Rp550 per share was the bottom of a Rp550-650 range, and represented a 19.1% discount to the October 13 closing price – considerably deeper than many other rights issues in recent weeks, which have tended to be for stock in Chinese blue chips like China Mobile and Ping An. Unusually, the raising was described in the offering document as a backstop for a subsequent rights issue for the same amount. Roughly half of the deal went to two unnamed anchor investors, both believed to be fund managers. Bank of America Merrill Lynch and CLSA were joint bookrunners.

International Mining Machinery offered 175 million shares at HK$6.70 per share, a 6.3% discount to the October 13 closing price, raising HK$1.17 billion (US$151 million). The selling shareholder was TJCC Holdings, owned by private equity firm Jordan Company, a pre-IPO investor. Bank of America Merrill Lynch was the sole placing agent.

SM Prime launched its first placement of shares since its 1994 listing, selling 569.6 million shares at Ps11.50 per share each. In a statement the company said it “saw strong interest from high quality institutional investors in Asia, Europe and the United States” and will use the funds for expansion in the Philippines and China, and for working capital. Company president Hans Sy said the placement “is expected to broaden our shareholder base and increase trading liquidity.” Macquarie Capital and CLSA led this deal.

Khazanah’s deal was the biggest of the lot, raising RM1.17 billion ($370 million) from a stake in Malaysia’s second biggest bank. Malaysia has a stated policy of reducing holdings in listed companies and this sale is part of that process. Being a state sale of a leading blue chip, and therefore attractive to investors, it came at the smallest discount of any block trade this week; it was offered in a range from a 2% discount to no discount at all before pricing at that 2% discount. 147 million shares were sold in the deal, sole led by UBS.

Several shareholders in BEC World Public Company, the Thai TV and radio group, raised Bt3.78 billion (US$126 million) in their deal, which was upsized by 14.3% from its initial size of 97.35 million shares to 111.27 million, or 5.6% of the company’s share capital. This deal priced at Bt 34 per share, near the bottom of a Bt33-36.75 range.  Bank of America Merrill Lynch – in an exceptionally busy week for selldowns – led by the deal with Phatra Securities.

Finally, a shareholder in Cathay Pacific – whose identity was not disclosed – was seeking to raise HK$860 million (US$110.5 million) from a sale of 40 million shares in Cathay Pacific at the time of writing. Credit Suisse was leading the deal, at a fixed price of HK$21.50, a 5.7% discount to the October 13 close.

HONG KONG IPOs

The pending arrival of AIA has done nothing to dampen the appetite of issuers for new Hong Kong floats, with several deals completed or announced this week with huge retail oversubscriptions.

Boer Power Holdings, a Chinese electrical group, raised HK$1.19 billion (US$154 million) on Wednesday, including a retail tranche that has been reported as being 341 times covered. Under standard clawback provisions, retail therefore ended up taking 50% of the deal rather than the initially planned 10%; 187.5 million shares were sold in all. CCB International and UBS led the deal, which unsurprisingly priced at the top of a HK$4.38-HK$6.38 range.

At the end of last week China Suntien Green Energy Corporation, a natural gas and wind power company, raised HK$2.87 billion (US$369 million) in a Hong Kong IPO through Macquarie and Morgan Stanley. The retail tranche was 275 times covered and so clawed back to 50% of the deal. And Kosmopolito, a hotel operator, raised HK$1.18 billion (US$153 million) in an IPO where retail covered their tranche 380 times over, again resulting in a full clawback, followed by a 95% first day performance. Credit Suisse, Morgan Stanley and Royal Bank of Scotland joint led the deal.

Among pending deals, Sihuan Pharmaceutical seeks to raise up to HK$5.75 billion (US$740 million) in a Hong Kong IPO, having delisted in Singapore last year. This medical drug company has already secured support from cornerstones including China Life, the insurance company; George Soros; Hillhouse Capital Management; Yunfeng Fund, which represents the interests of Alibaba.com chairman Jack Ma; and Value Partners. The deal will sell 25% of the company through 1.25 billion shares at HK$3.88 to HK$4.60 per share, with a 15% greenshoe option that could potentially increase the deal size to HK$6.61 billion of exercised in full at the top of the range. Morgan Stanley and UBS are joint global coordinators.

And IRC, a unit of the Petropavlovsk gold mining group, is to press on with a US$248 million deal having given up on an earlier attempt to raise between US$376 million and US$512 million. An attempt to market the deal at HK$2.20 to HK$3 failed to secure interest, and has been reported to have been reset at HK$1.80 per share. At the time of writing the deal, led by Bank of America Merrill Lynch, was open to retail investors at the time of writing.

BAML is also at the helm of another forthcoming Hong Kong IPO, for Yashili International. This deal, involving a sale of 644 million shares at HK$3.55 to HK$4.80 per share, will raise between US$295 million and US$398 million and is expected to price on October 25. Merrill is also leading a follow-on offering for Nasdaq-listed Funtalk China Holdings, which will sell 10 million additional shares with a potential 15% greenshoe. Another Nasdaq-listed Chinese company, apparel online platform Mecox Lane, is selling 11.74 million ADSs through Credit Suisse.

BRIEFS

AU Optronics completed a US$800 million five-year convertible bond issue at the end of last week, upsized from US$600 million. The bonds carried a zero coupon and a conversion premium of 27.5% over the reference price, which was the closing price in Taiwan on October 7. Yield to maturity is 2.875% calculated on a semi-annual basis. There is an issuer call after three years subject to a 130% hurdle. Bank of America Merrill Lynch, Goldman Sachs, Standard Chartered and UBS led the deal.