HPH Trust kicks-off bookbuilding

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As previously reported on this blog, Hutchison Ports Holdings Trust (HPH Trust) kicked-off yesterday the institutional bookbuilding process for its multi billion-dollar business trust IPO in Singapore. The preliminary prospectus posted on the Monetary Authority of Singapore’s OPERA website includes interesting features, which are highlighted below. 

The amount to be raised and sold under the offering, which will be the largest-ever in Singapore (and in South-East Asia), is in line with the US$6 billion that had been mentioned earlier.

The indicative offer price (which is expressed in US dollars, the currency in which the trust will be quoted) for the 3,619,290,000 to 3,899,510,000 units on offer is US$0.91 to US$1.08 per unit, which implies an offering size (excluding a US$1.62 billion cornerstone investor tranche) of just below US$3.3 billion to US$4.2 billion. A 15% over-allotment option (comprised of existing rather than new units), could add up to another US$583,147,080 million, taking the total offer size (including cornerstones) from just below US$5.8 billion to about US$6.4 billion.

This should give a free float (including cornerstone investors, which surprisingly appear not to be subject to a lock-up) of between 62% and 68.2%.

Since the listing of the units on the SGX pursuant to the offering will constitute a “spin-off” for Hutchison Whampoa (HWL) under Practice Note 15 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, qualifying HWL shareholders (including Cheung Kong) will be entitled to participate in the offering on a preferential basis as to allocation only by way of a preferential offer. Accordingly, qualifying HWL shareholders will be entitled to apply, on an assured basis, for 100 units for every board lot of HWL shares held by them on 3 March 2011.

The seasonally-adjusted dividend-per-unit (DPU) yield for HPH Trust is 5.5% to 6.5% for 2011 and 6.1% to 7.2% for 2012.

The joint bookrunners, lead managers, issue managers and underwriters for the offering are DBS, Deutsche Bank and Goldman Sachs, with Barclays, Daiwa, JPMorgan, Morgan Stanley and UBS acting as co-lead managers and underwriters of both the placement and the Singapore public offering. Daiwa is also the co-ordinator for the public offering without listing (POWL) in Japan alongside Mizuho Securities (which is not an underwriter in connection with the public offer, but also underwrites the placement tranche). HPH Trust has also appointed four co-managers and sub-underwriters, which are CIMB, OCBC, The Bank of Nova Scotia and UOB.

Allen & Gledhill, Freshfields and King & Wood are legal advisers to the trustee manager and Hutchison Ports Holdings Limited as sponsor, while Allen & Overy and Jun He Law Offices are advising the underwriters.The offering is marketed in the US through a Rule 144A private placement.

The size of the public offer hasn’t been announced but is probably likely to represent a single-digit figure in percentage terms, as is usual in Singapore. Similarly, the size of the POWL hasn’t been announced either as POWLs are conducted on an underwritten basis after the offer price has been determined.

Separate from the offering, the sponsor will receive, as part settlement of the consideration for the sale of the HPH Trust business portfolio and the assignment of certain related party and shareholders’ loans to HPH Trust, an aggregate of 3,309,377,999 units, equivalent to up to US$3.5 billion.

The placement tranche includes a cornerstone investor component for US$1.62 billion, i.e. 17.2% to 20.4% of HPH Trust’s share capital. The eight cornerstone investors are Ally Holding Limited (US$50 million), Aranda Investments Pte. Ltd. which is controlled by Temasek Holdings (US$100 million), Capital Research and Management Company (US$634 million), Cathay Life Insurance Co., Ltd. (US$100 million), Lone Pine Capital LLC (US$186 million, on behalf of investment funds), Metropolitan Financial Services Ltd (US$100 million), Paulson & Co. Inc. (US$350 million) and Seacrest FIR Incorporated, which is beneficially owned by Jenkin Hui and several members of his immediate family (US$100 million).

The risk factors included in the prospectus highlight that for the year ended 31 December 2010, the portfolio container terminals’ five and 10 largest customers accounted for approximately 41% and 68%, respectively, of throughput, although none of these customers individually accounted for more than 15% of the gross throughput. They also mention that HPH Trust has put in place a US$3 billion debt facility (which we previously reported was being marketed to lenders by the bookrunners), the repayment of which through cash-flow may be impaired given the pledge by HPH Trust to distribute 100% of its income to unit holders.

The sponsor has agreed to pay all issue expenses and the gross fees for the offering are 2.75%, excluding an additional discretionary incentive fee of 0.75% which may be payable to some or all of the underwriters. Brokerage is 1%.