HPH Trust – BT

HPH Trust IPO – not as big but still the biggest

In highest-priced scenario of US$1.03, it could raise up to US$5.6b instead of US$5.8b

The ceiling for Hutchison Port Holdings Trust’s initial public offering (IPO) may have been lowered, based on talk that its offer price range has been narrowed.

According to reports from wire agencies, the price range for the trust that will hold Hutchison Whampoa’s port assets in Hong Kong and southern China has gone from a minimum of US$0.91 and a maximum of US$1.08 to a new minimum of US$0.99 and a maximum of US$1.03.

In the highest-priced scenario of US$1.03, the IPO could raise up to US$5.6 billion instead of the previous maximum of US$5.8 billion. Even then, it will be Singapore’s and South-east Asia’s largest-ever IPO.

Petronas Chemicals’ US$4.1 billion IPO last year had held pole position as the largest one in South-east Asia. Its offer price of RM5.20 per share for institutions had been at the very top of its reported indicative price range of RM4.50 to RM5.20.

The news of the trust’s narrowed price range followed reports on Wednesday that bankers would be closing the institutional book for the offering one day early – yesterday – because the institutional offer had already been oversubscribed.

Cornerstone investors have committed US$1.62 billion to the IPO, including US$100 million from Temasek Holdings.

With the new range priced just slightly above the middle of the old range, it has been a case of glass-half-full or half-empty for analysts.

Marine Money Asia analyst Rodricks Wong described it as ‘around the upper band of the previously announced indicative price range’ which showed the investors’ demand for a more competitive yield.

Based on the old price range, the predicted distribution yield for 2010 had been between 5.5 per cent and 6.5 per cent. The new range would make the yield range from 5.8 per cent to 6 per cent.

The old yield range had previously been deemed ‘not as attractive’ by Mr Wong. ‘Shipping trusts – arguably HPH Trust’s closest comparables – for example easily trade in projected yields in excess of 8 per cent this year,’ he said.

Another analyst who declined to be named, however, said: ‘If you look at the range that they have narrowed down, it is actually at the mid-section of the range, obviously reflecting some strength but at the same time it’s not at the high end of the range. Usually, for very hot deals, they would be at the high end of the range.’

While the reported oversubscription shows that ‘institutional investors are still firm believers of the China growth story’, according to Marine Money Asia’s Mr Wong, he noted that the IPO had not been fully underwritten by all the participating banks.

‘The sheer size of the IPO is, of course, the immediate explanation one can think of, but at the same time this could also mean that the investment banks are still very much wary of the macro-fundraising environment – possibly due to the turmoil in the Middle East – and are more cautious when committing to underwriting allotments,’ he said.

While the trust will be traded in US dollars, its distribution will be paid out in HK dollars and misgivings over the currency have continued.

‘(The HK dollar) is pegged to the US dollar which is depreciating. Even though you might say that 2012’s dividend will be higher, if you’re giving it out in HK dollar, naturally your capital will start to depreciate. That means that your share price will start to depreciate,’ said Jason Chiang, a consultant with Drewry Maritime Services (Asia).

DBS, Deutsche Bank and Goldman Sachs are joint bookrunners and issue managers.