HONG KONG (Dow Jones Investment Banker) – As the largest announced IPO so far this year, the offering of HPH Trust, the container port assets of Hutchison Whampoa, will significantly boost Singapore Exchange Ltd.’s credentials in the ECM arena as it finalizes its tie-up with the Australian Securities Exchange (ASX Ltd.).
The IPO, whose pre-marketing began this week, is also noteworthy for using Singapore’s business trust structure and for its leverage. And the terms and the list of advisers offer some other tidbits that will interest deal-watchers.
Hutchison Whampoa – Li-Ka-shing’s infrastructure-to-retail conglomerate – will be selling a significant majority share in a package of assets owned by Hutchison Port Holdings (HPH). They include facilities in China’s Pearl River delta, among which are stakes in Hong Kong International Terminal (HIT) and COSCO-HIT in Hong Kong, the Yantian container facility near Shenzhen, as well as the economic interests in three river ports in the mainland.
The IPO could raise up to US$6 billion, making it the largest-ever in Singapore, ahead of SingTel’s float in 1993 and of those of Global Logistics Properties and CapitaMalls Asia in 2010 and 2009, respectively.
It’s still early days. The advanced prospectus hasn’t yet even been posted on the website of the Monetary Authority of Singapore, which normally precedes the public offer by at least a couple of weeks, and the closing of the deal is not scheduled for another month.
Li-Ka-shing is not known for selling at bargain prices, and the offering is said to target a prospective dividend yield in the 4.5% to 6.0% range – broadly in line with comparable infrastructure and logistics stocks.
Goldman Sachs, Deutsche Bank and Singapore’s DBS are acting as joint bookrunners, with a public offering without listing (POWL) in Japan managed by Daiwa and Mizuho. Hutchison plans to retain about a quarter of the company after listing, with an additional stake held by Temasek Holdings-owned PSA. That should give HPH Trust a large and liquid free float in the region of 65%.
The mandate is a coup for Goldman. Gone are the days when the firm’s hunting ground in the region centered around North Asia and greater China, even though in this case the issuer is a long-standing client in Hong Kong. The shift southward was already signaled by the recent elevation of Singapore- based David Ryan to the firm’s global management committee, as a co-president for Asia Ex-Japan.
It’s remarkable that Hutchison chose to list in Singapore given the location of HPH Trust’s facilities in Hong Kong and along the Chinese seaboard, as well as the SGX’s relative lack of a track record for billion-dollar deals and lower liquidity, as compared with the Stock Exchange of Hong Kong.
However, the SGX is home to 35 maritime and offshore listed companies, with a combined market capitalization of $48 billion, which gives it good credentials in the sector. In addition, Singapore runs the world’s largest trans-shipment port, whose own proposed multibillion-dollar IPO by Temasek was shelved in 2001, in the wake of the relocation by some shipping lines to Malaysia’s Tanjung facility.
Importantly, Hutchison chose to float HPH Trust as a business trust. This tax-efficient structure will enable it to distribute as much as possible of its earnings as dividends, with no Singapore withholding and income tax accruing to unit holders.
That feature will be enhanced by substantial gearing, achieved in part with the US$3 billion loan facility that is currently being marketed to lenders by the bookrunners. There are no limitations on leverage for business trusts, as there are for REITs or limited partnerships.
Hutchison Port Holdings Management Pte. Ltd., as trustee-manager of the trust, will benefit from an annual management fee of US$2.5 million, indexed to Hong Kong inflation, and from a substantial, staggered performance fee. Acquisition fees and divestment fees on assets will also be charged.
Business trust legislation has yet to be enacted in Hong Kong, so Singapore can thank its track record of savvy innovation for securing what will no doubt be one of the largest IPOs in Asia – and beyond – in 2011.
(Philippe Espinasse worked as an investment banker in the U.S., Europe and Asia for more than 19 years and now writes and works as an independent consultant in Hong Kong. Visit his website at http://www.ipo-book.com. Readers should be aware that Philippe may own securities related to companies he writes about, may act as a consultant to companies he mentions and may know individuals cited in his articles. To comment on this column, please email firstname.lastname@example.org).
[This article was originally published on Dow Jones Investment Banker on 16 February 2011 and is reproduced with permission].
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