2002: Asian tigers recover

Having limped along since the financial crisis, South-East Asia was back on its feet by mid-2002, with a series of significant capital raisings completed in a matter of weeks. In Malaysia, where the imposition of capital controls at the height of the crisis had left international investors outraged, mobile phone operator Maxis reopened the market with the country’s biggest IPO in 10 years. Days later the government sold the world’s first sovereign Islamic bond in US dollars, putting Malaysia firmly back on the capital markets map.

Singapore, which had been struggling to maintain positive growth since 1998, also made its mark with the listing of its first REIT – a deal that set an important precedent for the city’s exchange for years to come.

IFR Asia 262 – June 22, 2002

Maxis prices Asia Pacific’s largest IPO this year

Maxis Communications priced a 652.3m share IPO at M$4.85 per share, the middle of the M$4.40-M$5.33 indicative pricing range, to raise M$3.05bn. The transaction was Malaysia’s biggest IPO since that of Tenaga Nasional in 1992 and Asia-Pacific’s largest IPO in the year to date. ABN AMRO Rothschild, Goldman Sachs and ING were the bookrunners for the international tranche. CIMB and RHB Sakura ran the domestic tranche.

Of the shares on offer, 48% was allocated to international investors and 16% to domestic institutions, with the balance going to retail investors. Bankers said the international tranche was five times covered while the domestic tranche was 3.6 times covered. “We had several large orders at the beginning of the roadshow so we knew that it would be comfortably covered,” said a lead banker.

Most global emerging markets funds have been underweight Malaysia since the Asian crisis and have been waiting for an opportunity to re-enter the market. Maxis was deemed to be the perfect vehicle as many investors were familiar with the excellent reputation of the Usaha Tegas Group and because Maxis was one of the country’s leading companies.

As for global telecoms funds, bankers said they are generally more concerned with company specifics rather than their locales. Nevertheless, they were well represented in the book as they had not had an opportunity to participate in a major Asian IPO since that of China Unicom in 2000.

At the issue price of M$4.85, Maxis is priced at an EV/Ebitda 2002 multiple of 6.7 times, comparable to its regional wireless peers as the roadshows launched. But the global wireless index fell 9.5% during marketing. Consequently, Maxis ended up pricing at a premium to comparable regional plays, which had declined approximately 6%. “There was some price sensitivity with the major accounts at this level,” said a banker at one of the leads.

IFR Asia 263 – June 29, 2002

Malaysian Islamic bond makes its mark

The Government of Malaysia completed the world’s first sovereign Islamic bond denominated in US dollars last week via a 144a US$600m five-year FRN. The deal priced in line with price guidance at Libor plus 95bp as US$1.1bn of orders came in for the landmark offering brought to the market via sole bookrunner HSBC.

To price at all was no mean achievement given that it was a week of high volatility in global credit markets and Malaysian paper had its own problem to deal with. In the weekend before pricing, Prime Minister Mahathir Mohamad’s shock decision to resign unnerved markets and despite a quick retraction, Malaysian US dollar bond spreads widened by around 15bp.

However, Moody’s came to the rescue as it put the country’s Baa2 credit rating on review for upgrade. Spreads snapped back and orders continued to flow in after roadshows in Asia, the Middle East and Europe had explained the structuring behind the deal.

For the Islamic investor base, with funds under management near the US$200bn mark, the deal was a chance to invest in Malaysian US dollar denominated sovereign paper for the first time. For the conventional investor base, a US dollar Asian sovereign FRN is about as rare as they come and bank demand drove the pricing.

Orders of US$1.1bn allowed the deal to be upped to the maximum filing size of US$600m. A total of 51 investors bought bonds with 40% sold to Islamic investors and 60% sold to the conventional investor base. 40% was placed into Asia, 45% into the Middle East, and 11% to Europe with the balance going to US investors.

Around 50% of the orders were new to the Malaysian credit and all the paper was placed for cash with no switching out of outstandings.

As the deal priced, the Malaysia 2011s were quoted at around US Treasuries plus 180bp, or around Libor plus 130bp. A hypothetical new five-year fixed-rate deal would thus come at an equivalent of Libor plus 100bp, said bankers, and thus the Islamic appeal and the use of the FRN product saved the country around 5bp.

Given that the motivation behind the deal was to broaden the Islamic market rather than cost, the government of Malaysia has managed to price a competitive deal and deepen the market at the same time. Fellow Malaysian issuers such as Guthrie, Petronas and Tenaga are assessing their options but a US dollar Islamic bond for South East Asia’s other Islamic country, Indonesia, is not planned in the near future.

IFR Asia 265 – July 13, 2002

DBS prices Singapore’s first Reit

Lead manager DBS Bank completed Singapore’s first Reit last week by pricing a S$205m relaunched IPO for CapitalMall Trust, a deal that was pulled when UBS Warburg originally attempted to bring it to market in November 2001.

The offer of 213m units priced at S$0.96 per unit, the top of the indicative range of S$0.90-S$0.96, equal to a projected yield of 7.06% for this year and 7.25% for 2003. This compares with the yield on the Warburg-led effort of 5.75%-6.05%.

The book was five times covered with 39% of demand coming from retail investors and the balance made up of institutional orders, primarily from Singapore-based accounts. Bankers said the latter was the key to the success of the deal as Reits in other countries have largely been the domain of domestic investors.

As such, the vehicle was restructured from the November transaction. Bankers said the growth story of CapitalMall, as an actively managed trust backed by three Singapore shopping malls, was emphasised. The dividend yield was also raised, and CapitaLand agreed to take half of the management fees in the form of new units rather than in cash over the next year. In addition, the fees will be based on a percentage of revenue rather than a percentage of net asset value.

Bankers said investors also warmed to the reduced size of the offering from the S$530m November transaction. CapitaLand will now hold a 38% stake post-IPO rather than the planned 25% previously.

The involvement of four cornerstone investors – ING REI Investment, PGGM, BT Fund Management and NTUC Fairprice Cooperative – who had earlier agreed to buy 182m units, equal to a 24.6% stake, between them in a transaction ahead of the IPO added to the momentum of the deal.

Jay Nydick, managing director at Goldman Sachs, financial adviser to CapitaLand and CapitalMall, said: “CapitaLand has been disciplined and creative in restructuring this transaction and as a result has brought a new and innovative investment product to the Singapore market.”

Steve Finch, managing director of debt capital markets at DBS, said: “We believe the strong market reception is testament to investors’ growing awareness and understanding of this new asset class. We are optimistic that Reits will become a viable low-risk investment option for Singapore and global investors because it allows them to enjoy attractive returns based on a stable distribution yield, as well as some upside potential for capital gain.”

Trading will begin on the Singapore Stock Exchange on July 17.