CAPITALAND’S initial public offering (IPO) of its retail arm CapitaMalls Asia (CMA) to raise up to $2.8 billion is Singapore’s second-biggest IPO since Singapore Telecommunications (SingTel) raised more than $4 billion in 1993.
The meaty offering is drawing a lot of pent-up demand from institutional and retail investors. Over the past week, numerous people (including a few colleagues) have asked this reporter if they should buy into the IPO. They have been told (firmly) to consult their financial advisers. But having said that, a few things are worth noting:
1) At $2.12 a share, the IPO is priced on the conservative side, below the midpoint of an earlier indicative range of $1.98-$2.39 a share. Sources said that the IPO could have been priced higher, but the conservative pricing was decided on for CMA to fare well in its trading debut on Nov 25. Looking at CapitaLand’s track record, chances are that the stock will be ‘in the money’ when it starts trading.
2) The question then becomes: Should an investor buy CMA at the IPO stage, and then sell the shares after a suitable gain? Or should they hold onto it for the long term?
Strong fundamentals
This is debatable. On the surface, the fundamentals of CMA, which is now CapitaLand’s crown jewel, are strong. The new company manages and has interests in 86 retail properties worth $20.3 billion in Singapore, China, Malaysia, Japan and India.
Investors here will be familiar with CMA’s successful Singapore malls such as Raffles City, Plaza Singapura and the newly opened ION Orchard. Currently, CMA gets the bulk of its earnings from the malls here.
For the nine months ended Sept 30, 2009, Singapore accounted for 70.4 per cent of earnings before income tax (Ebit). China, the second largest market, contributed 20.1 per cent to Ebit, followed by Malaysia (9.5 per cent).
However, the risk profile of CMA is set to change in a few years’ time as the China business grows quickly. Of the 86 malls in CMA’s portfolio, 50 are in China. And of these 50 malls, 18 are under construction. Eleven will be completed in 2011 and beyond.
At this point in time, there is still concern that China’s current strong performance is a bubble. And if it does turn out to be a bubble which bursts in, say, 2011, shareholders of CMA could be left in a situation where there are still 11 malls in the pipeline in China.
3) Investors should not forget that CMA is a growth platform. It is therefore riskier than the group’s retail trust CapitaMall Trust (CMT), which derives its income from stabilised Singapore retail properties. Investors looking for stable dividend payout should therefore park their money with CMT instead.
However, for those looking for growth, CMA is a better bet. And this is where the company’s exposure to China could come in handy. The 23 operational malls (malls that are completed and have been operational for more than one year) in China have a net property income yield of 5.7 per cent, with just 93.5 per cent occupancy. Yields will no doubt climb as occupancy gets higher.
By contrast, the 14 operational malls in Singapore have a smaller net property income yield of 5.5 per cent, even though occupancy, at 99.1 per cent, is higher.
4) To buy or not to buy? Evaluate your risk appetite. (Or consult your financial adviser).
A much-needed IPO
CMA’s listing is a much-needed show of faith in the Singapore market by one of the largest property groups in Asia.
It comes on the heels of a slew of large IPOs in neighbouring stock exchanges. Analysts predict that Malaysian mobile phone operator Maxis Bhd’s US$3.3 billion IPO – the biggest ever in South-east Asia – has the potential to raise the international profile of the Malaysian market.
And needless to say, Hong Kong has drawn a slew of large listings over the past few years. Reports yesterday said that China Minsheng Banking Corp, the country’s seventh-largest listed bank, raised US$3.9 billion in its Hong Kong IPO.
Macau-based Sands China, a unit of Las Vegas Sands, also has plans to raise up to US$3.8 billion in a Hong Kong IPO.
Response from institutional investors for CMA’s public offering has been very strong.
The placement tranche of 1.059 billion shares is likely to be oversubscribed, and the 174.78 million over-allotment shares should also be taken up, sources said.
The listing will help restore some lustre to the Singapore market.
Source: Business Times, 20 Nov 2009
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