Some called it crafty-the way the IPO created an an “artificially high demand” for the company’s shares amongst institutional investors in lieu of its flotation onto the Main Market of Bursa Malaysia this month,
Market talk has been rife that Bumi Armada’s IPO has garnered strong interest from foreign and local institutional investors, with institutional offers oversubscribing by 5.6 times on the first day of bookbuilding
Under its IPO, Bumi Armada is offering 878.54 million existing and new shares, or about 30% of the company’s enlarged issued and paid-up ordinary share capital, and the IPO is expected to raise RM2.8bil at a retail price of RM3.15.
Existing shareholders of the company, mainly Ombak Damai Sdn Bhd, Wijaya Sinar Sdn Bhd, Wijaya Baiduri Sdn Bhd and Karisma Mesra Sdn Bhd, are selling a total of 234.28 million shares in this exercise while there will be 644.26 million new shares up for sale.
The offer for sale comprises institutional offering for Bumiputra investors approved by International Trade and Industry Ministry (MITI) while from the public issue, only 79.86 million shares will be for retail investors including directors of Bumi Armada and its eligible employees.
With the company having secured cornerstone investors to buy a total of 300 million shares, representing 10.2% of the enlarged issued and paid-up capital of the company, some analysts says that the remaining portion left for institutional investors is small.
“From the shares up for offer under the IPO, only some 18% or 160 million shares are available to institutional investors under the booking building exercise as 34% of the shares up for sale have been secured by cornerstone investors, about 38% falls under MITI’s approval for Bumiputra investors and the balance for retail investors.
The cornerstone investors include Great Eastern Life Assurance (Malaysia) Bhd, Permodalan Nasional Bhd, HwangDBS Investment Management Bhd, Prudential Fund Management Bhd, Hong Leong Assurance Bhd, Guoline Capital Ltd and Asia Fountain Investment Co Ltd.
With a potential market capitalisation of over RM9bil at an indicative retail price of RM3.15, the analyst says there will be an appetite among institutional investors wanting to buy into the company on its first day of trade.
“This naturally creates a strong demand for its shares (in terms of volume traded) and will likely see its share price close much higher on its first day of trade, as we saw for stocks like Petronas Chemicals Group Bhd and MSM Malaysia Holdings Bhd,” he pointed out.
With FY2011 price-earnings ratio (PER) of 26 times, the analyst expects the listing of Bumi Armada to provide a catalyst for a re-rating of the oil and gas sector and adds that it could become a FTSE Bursa Malaysia KL Composite Index (FBMKLCI) stock.
For the financial year ended Dec 31 2010, the Malaysia-based international offshore service player posted total revenue of RM1.2bil and net income of RM351mil, compared with a turnover of RM732.1mil and net profit of RM277.4mil for FY09.
Bumi Armada provides offshore services via four business units, which include floating production, storage and offloading (FPSO), offshore support vessels (OSV), transport and installation services (T&I) and oilfield service, as well as through two support units - engineering, procurement and construction and fleet management services.
So, I think a premium is in the offing for this stock.
