100 - Mega IPOs
- out of vogue?
Lotte
Chemical Titan Holding Bhd's (LCT) ambitious mega plan to
list its shares back on Bursa Malaysia after a seven year absence was given a
wake-up call by the very poor response from the investing public, particularly
the foreign funds.
Touted as one of
Malaysia's biggest initial public offerings (IPOs) in recent years, it nearly
didn't take off. The high pricing of RM8 per share and its too huge shares
issuances sizes were too much for the investing groups to absorb.
It was after some 72
hours of tough re-negotiation again that finally a re-pricing and a reduced
number of shares issuances agreement finally to see LCT on track for its
listing debut.
Is the days of
mad-scrambling for big reputation companies' Initial Public Offerings shares
over? I do not have the answer. I can only point out to a few recent giant IPO
that those who subscribed to their shares and stayed invested until today will rue their actions sadly.
In 2012, palm oil firm Felda Global Ventures Holdings Bhd (FGV) listed at RM4.55 and surged to as high as RM5.46 bringing cheers to
hundreds of thousands of plantation farmers and family members whom were
offered guaranteed IPO shares. (Many must have taken bank loans to finance
their IPO purchases. If they are still keeping the shares which most likely to
do so, they are now face with a loan to service with interest yet their shares
prices are down more than one dared to dream).
Since then, nothing has
gone right for FGV and its shares price dropped to as low as RM1.18 on Aug 26,
2015. The share price is now at RM1.65.
In 2015, Malakoff Corp Bhd, a giant independent
power producer to the country's main power company Tenaga Nasional Bhd (TNB),
listed at RM1.80 Despite having a stable cash flow and a 70% dividend policy,
its share price has not done well. It touched a low of RM1.02, incidentally at
the time of writing on July 10, 2017.
For those employees at
Malakoff with bank-financed loan for its IPO shares must be feeling gutted to
be now, in debts and most probably cursing their position now. How to have
motivation going to work everyday with such a situation?
More recently, this year
In April, another very large IPO, Eco
World International Bhd (Eco World)
listed at RM1.20. But its share price even touched a low of RM1.00 and a high
of RM1.36 since listing debut. Currently it is trading below its IPO price and
closed at RM1.12. (The fortunate thing is the successful bidders for the IPO
shares were given two free warrants for every five shares held after the IPO).
So why did all these
mega companies flopped after making its listing debut? Save for Eco World's
mild decline, the other two, FGV and Malakoff's declines are sharply painful for the faithful subscribers
or those who invested in the market directly and still holding on to their
investments.
I think one reason must
be the over valuations. It is common sense that if a company is going for
listings, valuations play a very important role in determining the IPO price
eventually. And this is where valuations come in.
The higher valuations
accorded, the higher price will be offered to those who subscribed
successfully. And the company would have collected its IPO proceeds regardless
of what happens to its share price later.
Back to LCT, there are
many puzzling questions that needed some answers. We can't blame the promoter
of LCT for trying to price its valuation IPO price as high as possible. But
what about the five cornerstone investors? The five : Permodolan Nasional Bhd (PNB), Maybank Asset Management Sdn Bhd, Maybank
Islamic Management Sdn Bhd, Eastsprings Investments Bhd and Great Eastern Life
Assurance (Malaysia), who agreed to acquire
around 136 millions IPO shares (representing 18.4% of the base offering of the
IPO).
Did these five companies
with their huge resources and research investing team conduct any own analysis
of LCT and arrived at their own valuations? If they have done so, then they
must have arrived at a "surprisingly" collectively same valuations of
LCT at this IPO price of RM8 per share.
I am sure if one of
their research team had valued its IPO price at example below RM8, they would
have advised their company about the difference and hence would have perhaps
renegotiated with the IPO promoter of LCT.
Remarkably, it needed
the absence of interest to subscribe for the portion from all those foreign
funds that set up the alarm bell. Thus the promoters had to reprice the share
from RM8 to RM6.50 which is a big discount of around 18% and also cut the
numbers of shares issuance by one-fifth.
At this adjusted price
of RM6.50, I think the valuation of LCT would have be at a price earnings ratio
of 20 (based on its net profit of RM1.3bil). This is also considered on the
high side unless the market perceived LCT as another premium chemical player
which deserved a higher PE ratings. The other is Petronas Chemicals Group Bhd (PetChem) which is trading at a PE of around 19.
But of course by the
time you are reading this, LCT would have made its debut on Bursa Malaysia on
July 11th and market would have its own natural mechanism of trading between
buyers and sellers to determine the price again.
Mr Market will deliver its verdict today!
