IPO pipeline hots up for Q4 burst

SINGAPORE - The chase for yield among investors has kindled more interest among business trust owners and Reits to list, and investment bankers are expecting more of them to launch their initial public offerings (IPOs) in the fourth quarter of this year.

Already, there are three business trusts and Reits which have become listed on the Singapore Exchange (SGX) this year.

Ascendas Hospitality Trust got the ball rolling with its IPO on July 27, which raised $384.85 million in gross proceeds. The public tranche, comprising 70.1 million out of 803 million stapled securities, was about 6.9 times subscribed.

A month later, Far East Hospitality Trust jumped into the market as well, raising $306.31 million. Its retail tranche achieved a subscription rate of 14.6 times, while the placement tranche was 30 times subscribed. Last Friday, India- based Religare Health Trust made its debut on the SGX main board.

The share prices of the first two have since gained 4.5 per cent and 9.1 per cent respectively.

Religare Health Trust, however, lost 10 per cent on its first day of trading. A report from Phillip Securities released before that had said that the trust was exposed to currency-exchange risks and increasing competition in the healthcare industry.

The end of October will bring the number of Reit and business trust IPOs this year to four, beating last year's total of three. Dynasty Reit, Singapore's first renminbi-denominated listing, is expected to make its debut on the main board on Oct 30, and plans to raise up to $1 billion in the process - making it the largest flotation in Singapore thus far this year.

Investment bankers BT spoke to expect even more to come by year-end.

The increased number of IPOs by business trusts and Reits is due to the strong demand for yield products from institutional and retail investors, in an environment with low interest rates and bond yields and high inflation, said Tan Kok Huan, managing director of asset-backed structured product at DBS.

"Reits and business trusts provide significant pick-up in yields - the average Reit yield is about 6 per cent and the average business trust yield is about 8 per cent. With the uncertainty in the economy and equity markets, investors are looking for defensive plays, and Reits and business trusts fit that bill."

Their strong performance is the reason the pipeline of business trusts and Reits for IPO in Q4 is "pretty strong", said Nomura head of Southeast Asia investment banking Kelvin Ho.

The total value of the IPOs by the Reits and business trusts this year will exceed last year's, if the jumbo Hutchison Port Holdings Trust - which raised US$5.45 billion to become Singapore's largest IPO to date - is excluded, said Mr Tan. The other two, Mapletree Commercial Trust and Perennial China Retail Trust, raised $1.34 billion through their IPOs.

The market's enthusiasm for business trusts and Reits comes amid a reinvigorated IPO market in the second half of the year. There have been 11 listings on both the main board and Catalist board since the start of July, compared with seven in the first half.

"The pick-up in IPO activity in the second half is largely due to renewed investor confidence from the recent rally in the global equity markets, as a result of the monetary easing policies of the Fed and European Central Bank," said HSBC managing director and head of Singapore advisory Alvin Lim.

Companies had already done their preparation work, and were just waiting for a good market opportunity to launch their deal, said DBS managing director of equity capital markets Tan Jeh Wuan.

Those with December financial year-ends also face an increasingly shorter runway as 2012 comes to a close - any delay to next year will mean more work to update their financial statements and prospectus, he added.

Also, companies that choose to drag their heels might miss the opportunity if the market turns around abruptly. "There's still a lot of risks in the market. Hence we would advise our clients, if you're ready, go out while the market window is open," said Nomura's Mr Ho.

Many expect the fourth quarter to be busiest for the IPO market this year. This week itself will see two more listings: Online game hosting services provider DeClout is expected to start trading on Catalist on Wednesday, and rigging and lifting solutions provider Gaylin Holdings targets to do so on the main board on Thursday.

Some $3.6 billion have been raised through SGX so far this year, according to data from SGX. Last year, 21 debutants on the main board and Catalist raised $9.36 billion, according to Bloomberg data, which excludes secondary listings by companies already listed elsewhere, such as Malaysia Smelting Corp. Of these, the mega IPOs Hutchison Port Holdings Trust and Mapletree Commercial Trust contributed the bulk.