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11-04-2011, 07:05 AM
Business Times - 11 Apr 2011
Share placements: trend or happenstance?
Impact of recent placements on the market is still up in the air, say analysts
By KELLY TAY
(SINGAPORE) Share placements appear to be gaining popularity on the back of improving valuations, bucking the general trend in equity fund-raising.
In the past three months, companies listed on the Singapore Exchange have announced new share placements worth more than $1.1 billion, a BT count shows.
The tally excludes placements associated with takeovers or listings. There were two placements announced in January, two in February, with the pace picking up with seven in March. The 11 companies included both big and small players, with deals cutting across various sectors such as manufacturing, trading, oil and gas, and even licensing industries.
More than half of the placement exercises occurred last month, with Noble Group Ltd leading the way on March 4. Its issue of 306.5 million new ordinary shares is expected to garner net proceeds of $625 million.
On the other end of the scale, smaller firms such as Asia Silk Holdings Ltd and Biosensors International Group Ltd were also part of the March mix, announcing more modest deals worth $364,600 and $156,783 respectively.
Across the board, placement prices represented discounts ranging between 6.4 per cent and 10 per cent, a range described by one analyst as 'predictable and safe'.
The use of proceeds was split fairly down the middle. Half pointed to efforts to reduce gearing by repaying bank borrowings and funding existing working capital needs, while the other half said that placement funds will be used to support future expansion plans.
Interra Resources Ltd is an example of the latter. The company engages in the exploration and operation of oil fields for crude petroleum production. Its placement of up to 38.5 million shares is expected to raise up to $4.78 million, all of which will be used to fund the group's future acquisitions of oil and gas concessions.
Two Reits, AIMS AMP Capital Industrial Reit and Ascendas Reit, also launched private placements in Q1, with expected net proceeds coming to $43.4 million and $393.3 million respectively.
All that took place during a relatively quiet period for equity raising. Just over a week ago, data from Thomson Reuters showed that equity fund-raising by Singapore companies hit an all-time low, yielding proceeds of just US$612 million in Q1.
At least three analysts whom BT spoke to are unsurprised by the rise in new share placements, given the recent market pick-up.
'It's correlated with the market. In a bullish market, there will be more placements, so it's not surprising that it's been happening more and more lately,' says George Lee, head of OCBC's group investment banking division.
In addition, Kenneth Ng, head of research at CIMB, says that companies have revived expansion plans that were previously put on hold.
'For Reits, new placements are quite normal. It just means that there are acquisitions in the pipeline,' notes Andrew Chow, head of research at UOB Kay Hian.
But why have share placements - as opposed to other fund-raising methods such as rights issues, bond issues and bank borrowing - won favour in recent weeks?
'While interest rates are cheap now, that will probably change as they trend higher in the future. So looking to equity makes sense,' says Mr Chow.
Analysts also note that size has probably played a part as well. For smaller companies, bonds represent a less viable option since they lack the name recognition necessary for a good take-up. At the same time, Mr Lee also speculates that banks are not keen to lend to smaller companies at the moment.
However, the underlying and most obvious reason for their popularity: Placements are a speedy and relatively hassle-free way to raise funds.
For most placement exercises, a shareholders' meeting need not be called; unlike a rights issue, no prospectus needs to be laid forth; and unlike a bonds issue, nothing needs to be rated.
But this is where the issue of share placements spills into contentious territory.
'Placements will definitely not be viewed as fair, especially in comparison to rights issues,' says Mr Lee. By bringing new shareholders on board, dilution for existing shareholders may occur.
'People will be focusing on whether there is potential dilution, and will look carefully to see who the private parties are,' he added.
Since the passing of the credit crisis, shareholders last year were more cautious about companies' requests for the licence to issue new shares to non-shareholders, at a discount rate of up to 20 per cent.
Some companies - such as Food Junction Holdings Ltd and Vicom Ltd - have voluntarily opted to reduce or even remove this mandate entirely.
All things considered, analysts say that the impact of recent placements on the market is still up in the air at this point. They caution that too many share placements at the same time may raise eyebrows, prompting people to question whether the market is close to peak.
Even though the number of share placements to date remains a far cry from the levels of activity seen in 2007, Mr Ng believes that such issues will increase.
'With market recovery, things are more stable and there are more aggressive plans to expand, so I do think that the trend will continue,' says Mr Ng.
Still, others remain hesitant in calling the recent issues a trend.
'While the market's improvement could have had an impact on these placements, they could also have been just a coincidence,' a dealing director says, preferring to view the issues in isolation, company-by-company.
With one new placement announced in the first week of April by Eratat Lifestyle Ltd, it remains to be seen if share placements are indeed a rising trend or a simple matter of happenstance.
Share placements: trend or happenstance?
Impact of recent placements on the market is still up in the air, say analysts
By KELLY TAY
(SINGAPORE) Share placements appear to be gaining popularity on the back of improving valuations, bucking the general trend in equity fund-raising.
In the past three months, companies listed on the Singapore Exchange have announced new share placements worth more than $1.1 billion, a BT count shows.
The tally excludes placements associated with takeovers or listings. There were two placements announced in January, two in February, with the pace picking up with seven in March. The 11 companies included both big and small players, with deals cutting across various sectors such as manufacturing, trading, oil and gas, and even licensing industries.
More than half of the placement exercises occurred last month, with Noble Group Ltd leading the way on March 4. Its issue of 306.5 million new ordinary shares is expected to garner net proceeds of $625 million.
On the other end of the scale, smaller firms such as Asia Silk Holdings Ltd and Biosensors International Group Ltd were also part of the March mix, announcing more modest deals worth $364,600 and $156,783 respectively.
Across the board, placement prices represented discounts ranging between 6.4 per cent and 10 per cent, a range described by one analyst as 'predictable and safe'.
The use of proceeds was split fairly down the middle. Half pointed to efforts to reduce gearing by repaying bank borrowings and funding existing working capital needs, while the other half said that placement funds will be used to support future expansion plans.
Interra Resources Ltd is an example of the latter. The company engages in the exploration and operation of oil fields for crude petroleum production. Its placement of up to 38.5 million shares is expected to raise up to $4.78 million, all of which will be used to fund the group's future acquisitions of oil and gas concessions.
Two Reits, AIMS AMP Capital Industrial Reit and Ascendas Reit, also launched private placements in Q1, with expected net proceeds coming to $43.4 million and $393.3 million respectively.
All that took place during a relatively quiet period for equity raising. Just over a week ago, data from Thomson Reuters showed that equity fund-raising by Singapore companies hit an all-time low, yielding proceeds of just US$612 million in Q1.
At least three analysts whom BT spoke to are unsurprised by the rise in new share placements, given the recent market pick-up.
'It's correlated with the market. In a bullish market, there will be more placements, so it's not surprising that it's been happening more and more lately,' says George Lee, head of OCBC's group investment banking division.
In addition, Kenneth Ng, head of research at CIMB, says that companies have revived expansion plans that were previously put on hold.
'For Reits, new placements are quite normal. It just means that there are acquisitions in the pipeline,' notes Andrew Chow, head of research at UOB Kay Hian.
But why have share placements - as opposed to other fund-raising methods such as rights issues, bond issues and bank borrowing - won favour in recent weeks?
'While interest rates are cheap now, that will probably change as they trend higher in the future. So looking to equity makes sense,' says Mr Chow.
Analysts also note that size has probably played a part as well. For smaller companies, bonds represent a less viable option since they lack the name recognition necessary for a good take-up. At the same time, Mr Lee also speculates that banks are not keen to lend to smaller companies at the moment.
However, the underlying and most obvious reason for their popularity: Placements are a speedy and relatively hassle-free way to raise funds.
For most placement exercises, a shareholders' meeting need not be called; unlike a rights issue, no prospectus needs to be laid forth; and unlike a bonds issue, nothing needs to be rated.
But this is where the issue of share placements spills into contentious territory.
'Placements will definitely not be viewed as fair, especially in comparison to rights issues,' says Mr Lee. By bringing new shareholders on board, dilution for existing shareholders may occur.
'People will be focusing on whether there is potential dilution, and will look carefully to see who the private parties are,' he added.
Since the passing of the credit crisis, shareholders last year were more cautious about companies' requests for the licence to issue new shares to non-shareholders, at a discount rate of up to 20 per cent.
Some companies - such as Food Junction Holdings Ltd and Vicom Ltd - have voluntarily opted to reduce or even remove this mandate entirely.
All things considered, analysts say that the impact of recent placements on the market is still up in the air at this point. They caution that too many share placements at the same time may raise eyebrows, prompting people to question whether the market is close to peak.
Even though the number of share placements to date remains a far cry from the levels of activity seen in 2007, Mr Ng believes that such issues will increase.
'With market recovery, things are more stable and there are more aggressive plans to expand, so I do think that the trend will continue,' says Mr Ng.
Still, others remain hesitant in calling the recent issues a trend.
'While the market's improvement could have had an impact on these placements, they could also have been just a coincidence,' a dealing director says, preferring to view the issues in isolation, company-by-company.
With one new placement announced in the first week of April by Eratat Lifestyle Ltd, it remains to be seen if share placements are indeed a rising trend or a simple matter of happenstance.
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