The Singapore-based
business space Reit goes ahead without cornerstones but is covered at
the top after the first three days. Meanwhile, Indonesian industrial
estate owner Deltamas is trying to restructure its IPO after demand
falls short.
At first glance, the launch of yet another real estate investment trust
(Reit) IPO in Singapore this past week is encouraging as it suggests
that improving equity markets are giving issuers the confidence to push
ahead with their listing plans.
But, the offering of up to S$469.2 million ($371 million) by Soilbuild
Business Space Reit also highlights that there is still a lot of
uncertainty about the short- to medium-term outlook for regional
markets.
For one, Soilbuild has not been able to secure any cornerstone
investors ahead of the launch. According to a source, investors aren’t
staying away altogether, but they are reluctant for their involvement to
be disclosed in the prospectus at a time when markets are still very
volatile and turnover is at a low due to the summer holidays.
Many of the potential cornerstones did agree to participate in the deal
as anchor investors instead, the source said. In fact, the 85.1%
placement tranche was basically covered before launch and the response
on the first day of bookbuilding (last Wednesday) was enough to push the
order amount above the total deal size, he said. By late Friday, the
interest had picked up a notch, with sources saying the deal is now
covered at the top of the price range as well.
One reason why investors prefer to come in as anchors could be that
they want to retain the flexibility to sell part of their positions
without alarming the market should the stock trade down in the
aftermarket. Since Singapore imposes no lock-ups on cornerstone
investors, they too are free to sell their IPO shares at any time.
However, cornerstones are disclosed in the listing prospectus while
anchors are not, and there is always a risk that other investors could
view it as negative if a known cornerstone chooses to sell early.
But perhaps more importantly, cornerstones also have to commit to buy
the shares, or in the case of Soilbuild, the units, at any price within
the price range. Anchor investors can usually set limits, which means
they are a bit more flexible if sector valuations were to deteriorate
during the marketing. Unlike cornerstones, anchors are, however, not
guaranteed a specific allocation, which could become an issue if demand
is high.
The second issue pointing to the lingering uncertainty is the fact that
bankers once again seem to feel there is a need to line up buyers for
almost the entire deal before they open the order books. Last year, the
portion of IPOs that was “pre-placed” with cornerstones and anchors kept
getting bigger and bigger as the market became more challenging and the
practice has continued this year — especially for smaller deals that
are not a must-own.
The challenges of bringing new and untested names to the market were
highlighted on Friday when industrial estate developer Puradelta Lestari
was forced to postpone the pricing of its IPO in Indonesia after a
sharp decline in the valuation of its closest comparables. Together with
further weakness in the rupiah this led to muted demand and a push back
on the indicated pricing.
Puradelta, also known as Deltamas after the name of its industrial
estate, hasn’t pulled the deal, but according to sources, it will try to
see if it can find enough demand if it reduces the deal size and the
price. If so, the IPO may be re-launched with new terms next week.
Indonesia is on holiday this entire week to celebrate the end of
Ramadan. The company was trying to raise between Rp1.569 trillion and Rp1.952 trillion ($154 million to $191 million) and was already offering its shares at a 60% discount to net asset value (NAV).
The difficulties facing Deltamas aren’t deterring other listing
candidates from approaching the market, however. Not even in Indonesia.
In addition to the launch of Soilbuild’s Reit IPO in Singapore, bankers
also started investor education of Indonesian healthcare provider Siloam
Hospital last Monday.
Depending on the investor feedback, the IPO may launch in mid-August.
Siloam, which is 100% owned by Indonesia’s Lippo group, is seeking to
raise about $200 million to $250 million. Credit Suisse, Goldman Sachs and domestic investment bank Ciptadana are joint bookrunners.
Soilbuild Business Space Reit
Soilbuild has seven assets in its initial portfolio — two business
parks and five industrial properties. Business parks are made up of
properties that are mainly used for offices, while industrial properties
include factories, ramp-up facilities and other properties used
primarily for manufacturing, engineering, logistics, warehousing and
research and development.
The Soilbuild brand is well-known in Singapore and the sponsor,
Soilbuild Group Holdings, is active throughout the property industry,
from construction and development to leasing and fund management.
The Reit is looking to raise between S$451.6 million and S$469.2
million ($357 million to $371 million) from the sale of about 586.532
million new units (73% of the trust) to public investors. The remaining
27% will be bought by Lim Chap Huat, who is a co-founder of the sponsor
and a director of the Reit management company.
The majority of the public shares, or 85.1%, will be offered to
institutional investors, while 14.9% of the deal will be set aside for
retail investors, the management, employees and business associates of
the sponsor.
The units are offered at price between S$0.77 and S$0.80, which
translates into an estimated dividend yield of 7.5% to 7.8% for the 2014
calendar year. The yield is pretty clean, except for the fact that the
Reit management company will receive its fees in units for 2013 and
2014. One source noted that this has helped lift the yield from the
mid-6% range, in response to the investor feedback.
The demand for a higher yield reflects the fact that the yield on the
Singapore 10-year government bond has widened by about 80bp since the
start of pre-marketing.
The current range puts Soilbuild at a slight premium (in yield terms)
to Mapletree Industrial Trust and AIMS AMP Capital Industrial Reit,
which sources say are the closest comps. However, analysts argue that
because of its greater exposure to business parks (about 40% of its
total portfolio value), Soilbuild should actually trade at a tighter
yield than the other two.
One reason is that business parks have a larger and more diversified
pool of tenants. Mapletree Industrial Trust, which has about 20% of its
portfolio in business parks, is currently trading at a 7.1% yield for
the fiscal year to March 2015, while AIMS AMP Reit is offering a yield
of 7.4% for the same business year.
Singapore-listed Reits that focus almost exclusively on industrial
properties, such as Cache Logistics, Cambridge Industrial Trust and the
Sabana Shari’ah Compliant Reit, are trading at forward yields of around
7.5% to 8%, Bloomberg data show.
Soilbuild also comes with an overallotment option of 87.5 million
secondary units that will be provided by Lim if the demand in the
aftermarket is strong enough. The option accounts for 9.6% of the base
deal and could increase the total proceeds to as much as S$539.2 million
($424 million). If exercised in full, the free-float will increase to
80%, while the portion held by Lim will drop to 20% from 27%.
The institutional bookbuilding will end tomorrow with the price
expected to be fixed shortly afterwards. The retail offering will follow
on August 7 to 14 and the trading debut is scheduled for August 16.
Interestingly, the bookrunners — Citi, DBS and DBS — have chosen not to actively market the deal outside of Asia and the management will only visit Singapore and Hong Kong.
Puradelta Lestari (Deltamas)
The industrial estate developer was looking to sell 15% of its share
capital, but can reduce that to 10% and still meet the minimum
free-float required by the Indonesian regulators. However, after its
closest comp, Bekasi Fajar Industrial Estate, fell 16.4% during the
six-day bookbuilding, sources said the offering price will need to be
revised down as well.
Some international investors have apparently shown interest at a lower
price, but the question is how low the seller is willing to go. It had
already reduced the size from an initial aim to raise about $300 million
to the $154 million that it sought from investors at the bottom of the
price range.
The company needs money to fund the basic infrastructure, such as
roads, electricity and water, as well as residential housing, parks and
other common facilities on the Kota Deltamas estate before selling land
to various industries for development into factories.
If it isn’t able to complete the IPO at this time, it will likely have
to seek alternative types of funding. That is probably also why it was
so keen to go ahead with the IPO even though the response during the
investor education was pretty mixed.
International investors were said to have been positive with regard to
the underlying assets, but were asking for a sizeable discount versus
other similar industrial estate developers, including Bekasi Fajar. They
were also concerned about the sharp drop in the rupiah, which is making
investments into Indonesia more costly, while also eating into any
potential returns.
Citi, Macquarie and Nomura
are joint international bookrunners for the Deltamas IPO, while
Macquarie and Sinarmas Sekuritas are joint domestic underwriters.
Source: FinanceAsia
