HPH Trust prices its S’pore IPO at US$1.01 per unit: sources

HONG Kong billionaire Li Ka-Shing’s Hutchison Port Holdings Trust priced its Singapore IPO at US$1.01 per unit, in the middle of a US$0.99-US$1.03 indicated range which itself was tightened from a wider range on Thursday, three sources with direct knowledge of the deal told Reuters.

The offering will raise US$5.4 billion in total, in what will still be South-east Asia’s largest stock offer.

The IPO was earlier expected to raise US$5.8 billion on an indicated price range of US$0.91 to US$1.08 a unit.

The sources declined to be identified because the final price has not been made public, while the company and banks involved in the deal were not available to comment.

The IPO, which takes the form of a business trust, had attracted cornerstone investors including Singapore investment company Temasek Holdings, US hedge fund manager Paulson & Co and fund manager Capital Research and Management, which had committed to pour in US$1.6 billion in the deal.

Despite the strong interest, the IPO did not meet the initial pricing expectation, reflecting investors’ anxiety about financial markets due to political turmoil in the Middle East and rising inflationary pressures.

That raises concern about upcoming multi-billion dollar IPOs in Asia, led by commodity trading firm Glencore’s listing in Hong Kong and Mapletree Commercial Trust’s S$1 billion deal in Singapore. ‘There is a pipeline of deals, but investors remain somewhat mixed at the moment,’ said John Woods, Asian strategist at Citigroup Private bank in Hong Kong.

Hutchison Port Holdings, a unit of Mr Li’s Hutchison Whampoa, owns and operates ports in Shenzhen and Hong Kong and is aiming to cash in on a recovery in global trade and provide investors with access to China’s booming infrastructure business.

Mr Li, Hong Kong’s richest tycoon, chose Singapore because of more favourable tax treatment for trust-like structures. A business trust is any grouping of assets that usually offers a steady stream of dividends and appeal largely to more conservative investors who want to diversify from bonds.

‘This will be a significant boost to Singapore’s efforts to compete with the likes of Hong Kong and Shanghai as a leading financial centre in Asia,’ said Jake Robson, a partner at law firm Norton Rose in Singapore who specialises in equity capital markets.

The Hutchison ports listing is the first large-scale launch of a business trust by a non-Singaporean business and the amount of money that will come in will exceed the total US$2.9 billion raised through IPOs in Singapore for the whole of last year, according to Thomson Reuters data.

‘The price probably reflects the greater volatility and uncertainty in the markets. It’s a very large IPO so to get it at the high end of the price range would have been tough,’ said Kevin Scully, managing director at NRA Capital.

‘Even at US$1.01, the yield is quite attractive for medium-term investors as long as China and Asian economies remain buoyant,’ he added.

A source involved in the deal told Reuters the yield is about 5.8 per cent, based on the US$1.01 price. This compares with a yield of around 7 per cent offered by many Singapore-listed business and property trusts.

The size of the Hutchison ports offering exceeds Petronas Chemicals’ US$4.1 billion fund-raising last year, which was the biggest IPO in South-east Asia at that time.

Hutchison Whampoa’s ports subsidiary and Singapore’s PSA could jointly own as much as 38 per cent of the company after the IPO.

The listing is positive for SGX, which is currently in a bid to acquire Australian stock exchange operator ASX in a US$7.7 billion deal, as it could potentially attract more business trusts and ports-related entities to list in the city-state, Credit Suisse head of Singapore research Sean Quek said.

The continued strong interest in the Hutchison ports IPO contrasts with the diminishing appetite for new issues, which has delayed a planned S$1.1 billion Singapore IPO by Perennial China Retail Trust, a trust managed by former CapitaLand shopping mall chief Pua Seck Guan.

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

JPMorgan, UBS, Barclays, Morgan Stanley are among co-lead managers. — Reuters

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.

Investors should be aware of the forex risk when subscribing for units via the ATM.

• Note the subscription will be at S$1.383 per unit, translated from the US$1.08 maximum price and based on exchange rate of US$1 = S$1.2806.

• Should the price be fixed lower than US$1.08 (subject to US$0.91 minimum), the difference will be refunded based on the same exchange rate of S$1.2806.

• The same “protection” however does not apply in respect of refund in the event the subscription is not successful or partially successful.

• In which case, the refund will be based on the prevailing exchange rate. Yesterday, the mid-US$/ S$ rate is S$1.2690 (source BT / OCBC).

Remember the variance between the daily bid (when you subscribe) and offered rates (when the bank makes the refund).

• One option is to apply closer to the closing time and date at 10 am on Monday Mar 14.

Hutchison port units’ sale here from March 7

HUTCHISON Whampoa Ltd will start the Singapore public offering of its Chinese port-asset trust on March 7 and close it at 10am local time on March 14, according to a filing with the Hong Kong stock exchange yesterday.

The Hong Kong preferential offering will start on March 7 and end at 4.30pm on March 11, Hutchison said.

The port units will start trading in Singapore on March 18. The company is offering up to 3.9 billion units at 91 cents to US$1.08 each. — Bloomberg

Port spin-off may give Hutchison US$5.8b booster

But distributions in HK$ may be a downside for local investors

Hutchison Whampoa’s port unit is set to raise anywhere from US$4.91 billion to US$5.83 billion from the initial public offering (IPO) of Hutchison Port Holdings Trust (HPH Trust), the trust’s preliminary prospectus showed yesterday.

The offering – South-east Asia’s largest – will be backed by Temasek Holdings, one of its cornerstone investors. The trust will sell about 3.9 billion units to the public and institutional investors, priced within a range of US$0.91 and US$1.08 apiece.

On top of that, about 1.5 billion units will be parcelled out to eight cornerstone investors that will subscribe for US$1.62 billion worth of trust units, in total.

Aranda Investments Pte Ltd, of which Temasek Holdings is the ultimate controlling shareholder, has committed a subscription amount of US$100 million. Capital Research and Management Company will lead the group, investing US$634 million. Paulson & Co, which is managed by John Paulson, will take a US$350 million stake and Lone Pine Capital LCC has pledged US$186 million.

Based on the maximum offer price of US$1.08, the cornerstone investors will hold 17.2 per cent of the trust. The trust’s sponsor – Hutchison Port Holdings Limited – will own a 38 per cent stake. PSA International holds an effective 20 per cent stake in the sponsor. At that price, the trust will have a market capitalisation of about US$9.41 billion.

The sponsors have estimated annualised distribution yields of 5.5 per cent and 6.1 per cent for 2011 and 2012, respectively, based on the maximum offer price. The 2011 period is a nine-and-a-half month period running from Mar 16 to the end of the year. Kenneth Ng, head of CIMB-GK Research, deemed the yield ‘fairly decent’.

With the distributions being declared in Hong Kong dollars, however, local investors might face an accompanying downside, said Phillip Securities analyst, Alfred Low. ‘If it’s in Hong Kong dollars – which is tied to the US dollar – then if the Sing dollar appreciates next year, it’s bad,’ said Mr Low.

The timing of the IPO might work against it as well, as investors have displayed skittishness in response to the turbulence in the Middle East.

‘The equity markets are doing so badly, with all the IPOs underperforming. Based on the mid-point of the price range, I would not subscribe,’ said Mr Low.

Other market watchers, however, believe that the turmoil in the Middle East will make this region look like a safe haven for investments, in comparison. The merits of the trust could also make it an outlier, according to CIMB’s Mr Ng. ‘It’s a business trust or a Reit-like structure marketed as a yield-providing instrument, so even in jittery markets, there should be demand for such issues,’ he said.

HPH Trust’s portfolio will include Hongkong International Terminals (HIT) and Cosco-HIT Terminals, along with the Yantian terminal in the Shenzhen Port. Last year, total throughput for all the container terminals in the trust’s portfolio stood at 21.17 million twenty foot-equivalent units (TEUs), up from 18.08 million TEUs in 2009.

In 2009, Hong Kong and Shenzhen topped global container throughput lists with a combined throughput of about 39.2 million twenty foot-equivalent units.

Revenue from the trust’s deep-water port business accounted for more than 90 per cent of HK$11.56 billion in total revenue last year.

The trust will also have a claim on the economic benefits derived from the three river ports of Jiangmen, Nanhai and Jiuzhou. These three ports brought in HK$70.9 million in economic benefits last year.

As Intra-Asian trade explodes and an increasingly large proportion of it begins to revolve around the mainland, the trust will focus on developing and investing in deepwater container ports lining the Pearl River Delta.

The proceeds from the offering will partially pay off the HK$102.9 billion price tag on the assets when the trust acquires them from the sponsor. The rest of the acquisition will be funded by a three-year US$3 billion debt facility and an issue of consideration units.

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