Maybulk unit plans IPO in Singapore

by **Cals** Mon 07 Apr 2014, 01:31

Published: Saturday April 5, 2014 MYT 12:00:00 AM
Updated: Saturday April 5, 2014 MYT 6:49:41 AM
[size=40]Maybulk unit plans IPO in Singapore
BY JOHN LOH[/size]
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MALAYSIAN Bulk Carriers Bhd’s (Maybulk) 21.23%-owned associate PACC Offshore Services Holdings (POSH) is planning an initial public offering (IPO) of up to US$370mil (RM1.21bil) in Singapore, with a good number of the shares going to Malaysian funds, including Hwang Investment Management, sources say.
The listing, scheduled for April 25, is offering some US$325mil (RM1.07bil) worth of shares in POSH under the base offer, which could rise to US$370mil (RM1.21bil) if the overallotment option is exercised, bankers familiar with the matter tellStarBizWeek.
Bookbuilding and lodgement have been set for next week, another banker says.
About US$300mil (RM984mil) of the offshore supply vessel (OSV) operator’s share sale is said to be already covered by key investors and funds.
“The deal should be well supported and bid for once it goes to public offering,” says an industry executive.
Cornerstone investors have been allocated some US$90mil (RM295.2mil) and anchor investors, US$80mil (RM262.4mil) to US$100mil (RM328mil). Several other Malaysian fund houses are said to have signed on as cornerstones, but they could not be ascertained as at press time.
Maybulk itself is expected to put US$50mil (RM164mil) into the IPO to prevent its associate stake in POSH, which has been the shipping firm’s saving grace for the past few years, from being diluted.
POSH is believed to be valued at eight to nine times its financial year 2015 earnings, with a post-money equity value of US$1.7bil (RM5.58bil)-US$1.8bil (RM5.9bil). Bookrunners for the listing include Bank of America Merrill Lynch, DBS Group Holdings Ltd and Oversea-Chinese Banking Corp Ltd.
Maybulk noted in a filing on Tuesday that POSH had received a conditional eligibility-to-list on the Singapore Stock Exchange, prompting a proposal from the Robert Kuok-owned firm to subscribe for shares.
The group intends to spend no more than US$70mil (RM229.6mil), financed entirely by borrowings, for this purpose.
The move, however, requires shareholder approval, and Maybulk has called for an EGM on April 17 in Kuala Lumpur.
“The independent directors, having considered and deliberated on the matter, propose that Maybulk maintain an equity stake of approximately 20% in POSH through the subscription of sufficient POSH shares to achieve that level of shareholding pursuant to the IPO,” Maybulk says.
This is not expected to materially affect the group’s earnings, net assets or gearing for the financial year ending 2014.
In 2008, Maybulk had acquired its interest in POSH from its biggest shareholder, Pacific Carriers Ltd, for US$221mil (RM724.88mil), on the condition that if POSH was not listed by the end of last year, then Maybulk has six months by which to exercise a put option to hive off its shares at 125% of its cost, or US$276.25mil (RM906.1mil).
The Singapore-headquartered POSH, which has one of the largest OSV fleet in the region, is known as an industry leader in the marine towage market.
Its fleet consists of platform supply vessels, accommodation vessels, semi-submersible barges, harbor tugs, and tugs and barges, according to Maybulk’s annual report.
POSH’ earnings contribution has helped Maybulk stay afloat since the post-crisis years, when many shippers went belly-up as global trade reeled from the credit crunch.
Analysts, in fact, expect Maybulk’s core shipping business to remain in the red at least until the end of this year.
Earnings outlook
In a note to clients on Thursday, Kenanga Research kept its forecasts on Maybulk unchanged pending more clarity on the financial information and earnings outlook of POSH in the IPO prospectus, which has yet to be released.
Nonetheless, it thinks Maybulk’s participation in the listing is net positive given the robust outlook for the OSV market in the coming years and POSH’s strong chance of securing a fair valuation, which would add value to Maybulk as a shareholder.
“Based on the evaluation by advisors in the circular, POSH is valued at the range of US$1.3bil (RM4.26bil)-US$1.5bil (RM4.92bil), which appears to be at a premium to its peers with average forward price-to-earnings ratio (PER) of 11 times (16.2-18.7 times financial year 2014 earnings forecast for the company).
“In contrast, it is a different story when we look at its forward PER, which is implied in the range of 6.5-8.6 times over FY15 to FY16 based on the forecast numbers by independent advisors for the circular report,” Kenanga analyst Lim Sin Kiat says.
The market seems to agree. Shares of Maybulk jumped to RM2.17 earlier this week, a level not seen since February 2012. There are four “buy” calls on the stock, one “hold” and two “sell”, with a consensus target price of RM2.17.
Lim says the subscription of shares could increase Maybulk’s gearing to 0.2 times from 0.06 times, which it says is still healthy as the company’s peers have gearing ratios in excess of 0.5 times.
“We believe that the potential impact on the group’s earnings will be minimal assuming that it subscribes to the IPO to maintain its stake at 20%. To put that into perspective, post-listing of POSH, our earnings forecast for FY14 and FY15 respectively are expected to reduce by 9% and 6%.”
MIDF Research, meanwhile, retained its “neutral” call but upped its target price to RM2.30, noting that POSH will double its fleet with 50 OSVs within the next three years.
POSH, which constituted the lion’s share of Maybulk’s earnings last year, saw its earnings contribution to the group surge 54% to RM54.42mil.
“Betting on the recovery of dry bulk segment, Maybulk will take delivery of three Supramax and one Handysize vessels into its fleet. This represents a capacity surge of more than 19% this year alone,” MIDF Research says.
The research outfit adds that it is upbeat on the dry bulk sector due to an improvement in the Baltic Dry Index as well as demand for seaborne transportation from China’s urbanisation and railway projects.