Thursday, July 5, 2012

IHH Covered, ... Prospects?

The deal was covered on the first day alone. There are many detractors to this IPO over the seemingly demanding valuations based on current earnings. I think we should be looking at the totality of revenue stream over the next 2-4 years. I think IHH will perform even better than FGV. It is in an important sub sector of healthcare and services, an important niche exposure for many smart funds. Needless to say 22 cornerstone investors will guarantee success. I am looking at RM3.35-3.40 on opening day.
Dr. Obama

FinanceAsia: Investors have snapped up the opportunity to buy into IHH Healthcare's initial public offering, covering the whole deal soon after bookbuilding was launched on Tuesday, sources said yesterday. The company is aiming to raise between M$6 billion and M$6.4 billion ($1.9 billion to $2 billion).


It will be the third-biggest IPO in the world this year after Facebook and Felda Global Ventures, which raised $16 billion and $3.1 billion respectively through their offerings. Observers have said that support from ample domestic pension money has largely helped offerings in Malaysia so far this year. IHH, which is backed by state-owned Malaysian investment company Khazanah Internasional, will have a dual listing in Malaysia and Singapore, which the company said will be the first concurrent IPO ever in the two markets.


As part of the base offering, IHH is selling up to 2.2 billion shares for a price ranging between M$2.67 and M$2.85 each, according to the sources. A total of 80.5%, or 1.8 billion shares, are new. The remaining 19.5% are secondary shares that will be sold by Abraaj Capital, the former owner of the Acibadem hospital in Turkey, which was paid partly in shares when IHH bought the business. Abraaj will sell its entire stake through the IPO.
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The hospital operator had already signed up 22 cornerstone investors who are taking a large portion, or 62.1% of the base deal.


With the large cornerstone tranche in place, the institutional portion is rather small at up to $124 million, comprising 138 million shares or 6.2% of the deal. The response has been very good and the book was covered for the institutional tranche, as well as for the total deal, soon after the launch of the bookbuilding, one of the sources said. Another source noted that retail investors typically tend to wait to come in until the end.


The company is offering up to 208.5 million shares for the Malaysian public offering and up to 140.6 million shares for the Singapore public offering, together accounting for 15.6% of the deal. The portion for the MITI tranche, which will be placed to Bumiputera institutional and selected investors, comprises 360 million shares, or 16.1% of the deal.


The base offering represents 27.7% of IHH’s enlarged share capital.


The transaction comes with a 7.6% greenshoe option, which could raise up to M$6.85 billion. The 169.4 million greenshoe shares are secondary, and will be sold by Khazanah.


The company started investor education on June 8 and had kicked off the management roadshow a week later. The bookbuilding for both the institutional and retail portions started on Tuesday, and the pricing is expected on July 12. The listing is scheduled for July 25.
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Prior to the transaction, Khazanah had a 62.1% stake in IHH and Japan’s Mitsui & Co owned 26.7%, while Middle East-based investment firm Abraaj Capital and the Aydinlar family owned 7% and 4.2%, respectively, according to a syndicate research report.


The cornerstone tranche of 22 investors is not only large but also of high quality: the line-up includes sovereign wealth funds, IFC and some leading Malaysian entities. A couple of the cornerstones were shareholders in Parkway and Pantai before these two units were taken private by IHH and delisted from the Bursa Malaysia and the Singapore Exchange in 2007 and 2010 respectively.


The IPO price range values IHH at a 2013 enterprise value-to-Ebitda multiple of between 15.2 times and 15.9 times, based on bank research, one of the sources said. That comes as a premium to other regional hospital operators, though smaller, such as Singapore-listed Raffles Medical Group, Bangkok-listed Bangkok Dusit and India’s Apollo. They trade somewhere between 12 to 15 times, the person said.


Given IHH’s size, as well as its geographical exposure, the Malaysian company deserves a premium to these companies, and investors appeared to be comfortable with the valuation, the source said.


IHH currently has more than 4,900 beds in 30 hospitals, as well as medical centres, clinics and other healthcare businesses across eight countries in Asia, the Middle East and Eastern Europe. Most of the beds are located in Malaysia, Singapore and Turkey — countries that the company refers to as its home markets. However, it will add a further 3,300 beds during the next five years, including the new Mount Elizabeth Novena hospital in Singapore, and will add about 333 beds by the end of 2013. The growth will come from new hospital developments as well as expansion of its existing facilities.


The hospital sector is also quite defensive, with visible earnings and predictable cash-flow generation. Healthcare spending is underpinned by economic growth, rising affluence and ageing populations.


IHH will use about 90.9% of the money raised to repay bank borrowings.


Among the cornerstone investors, Malaysia’s Employee Provident Fund Board is taking 200 million shares, or about 8.95% of the total offering (pre-shoe), and the Kuwait Investment Authority is buying 150 million shares, or 6.7% of the deal.


The other cornerstones are AIA Group, Blackrock Investment Management, Capital Group International, Capital Research Global Investors, CIMB-Principal Asset Management, CMY Capital Markets, Eastspring Investments, Fullerton Fund Management (a unit of Temasek), The Government of Singapore Investment Corp, HPL Investors and Como Holdings, Hwang Investment Management, International Finance Corp, JF Asset Management, Keck Seng, Kencana Capital, Lembaga Tabung Haji, Mezzanine Equities, Newton Investment Management, Och-Ziff Capital Management Group and Permodalan Nasional.


Bank of America Merrill Lynch, CIMB and Deutsche Bank are global coordinators and bookrunners. Credit Suisse, DBS, and Goldman Sachs are joint bookrunners.

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