This article first appeared in The Edge Financial Daily on July 5, 2017
KUALA LUMPUR: Lotte Chemical Titan Holding Bhd (LCT), which is set for the biggest listing in Bursa Malaysia since 2012 on July 11, saw only 61.87% of the retail portion of its initial public offering (IPO) taken up by investors.
Applications for 34.51 million shares were received from retail investors for whom 55.78 million shares had been set aside, according to the IPO’s issuing house.
“The unsubscribed retail offering of 21.27 million shares, which were underwritten by the joint underwriters, were clawed back and reallocated to the institutional offering,” said Malaysian Issuing House Sdn Bid (MIH) in a statement yesterday.
MIH said the institutional offering of 524.22 million shares was fully taken up.
Last Thursday, the institutional offering was slashed by 23.44% or 160.48 million shares from the original amount of 684.7 million shares. The move has cut down LCT’s public shareholding spread from 30% to 25.13%, barely surpassing Bursa Malaysia’s public shareholding spread requirement of 25%.
LCT said the decision came after it considered the overall institutional demand “through price discovery”. Subsequently, the company announced on Monday a reduction in the IPO price to RM6.50 per share, which is at a discount of RM1.50 to the initial retail offering price of RM8 per share.
“As the final retail price of RM6.50 per IPO share is less than the retail price of RM8 per IPO share, which was paid in full upon application under the retail offering, a refund of the difference being RM1.50 per share shall be made to successful retail applicants,” said MIH.
Additionally, LCT has also offered a share buy-back to retail investors who wish to reconsider their investment decision following the IPO revisions. The buy-back offer will be from July 12 to July 18, with payments to be made after within 10 market days.
The revised IPO size, paired with the lower issuing price will slash the IPO proceeds to RM3.77 billion, from up to RM5.92 billion mentioned in the IPO prospectus.
From the proceeds, LCT will spend RM2.8 billion to partially fund the development of its RM15.5 billion integrated petrochemical facility in Merak, Indonesia, RM620 million for the construction of a new polypropylene plant in Johor and RM220 million to upgrade its existing naphtha cracker.
In a separate statement, LCT president and chief executive officer Lee Dong Woo said he is “pleased” that the strategy to restructure the IPO “has worked out positively”.
“While the total amount raised is less than originally targeted, the IPO raised almost RM4 billion and secured the participation of quality long-only Malaysian and global institutional investors to ensure a strong shareholder base for the company.
“The response from investors in Malaysia and globally reflects their trust and confidence in LCT and its growth prospects,” said Lee.
The lower issue price should come as no surprise — analysts have given mixed valuation of the company’s share price. In a note last Wednesday, Hong Leong Investment Bank Research said Lotte’s shares are valued at RM7.39 each or 12 times its forecasted financial year 2018 price-earnings ratio (PER). Meanwhile, Kenanga Research gave a valuation of RM9.05 per share, while PublicInvest Research rated the shares at RM8.08 based on 13 times PER.
With the latest development, LCT will achieve a post-listing market capitalisation of just over RM15 billion. At RM3.77 billion, the IPO is still the biggest since 2012, surpassing Eco World International Bhd’s IPO of RM2.58 billion in April this year.