Lotte Chemical IPO: win many of number one Malaysia record

Today, want to write something  about a company call Lotte Chemical. See their logo below, very simple.

This company tentatively going to list at Bursa Malaysia on 11 Jul 2017.  So, who are they? Make it simple, Lottle Chemical is a petrochemical producer (currently, we have another company Pchem list at Bursa who have the nearest product, of course, Pchem is about 4 times bigger) who set up their plant at Malaysia and Indonesia, their parent company is famous Korea's Lotte Group... Just go to below link if you want to know in details for this company:

What's so special about this company? First, it's one of the most expensive IPO in Malaysia's record when they launch their IPO price at RM8 on Jun 2017. To list at this price, their market capital is around RM19.7 billion. (compare to the Pchem market cap is RM57.7 billion)  At the price of RM8, the PE is about 15 times (base on Earning per share of 53.31 cents), one can consider expensive for this stock.

They also said that they have at least 5 cornerstone investors, PNB, Eastsprint Investment, Great Eastern Life Assurance Malaysia, Maybank Asset and Maybank Islamic Asset Management. However, these cornerstone investors are not subject to any lock up arrangement. (as per page 20 of prospectus)  Then the book building exercise began and they suppose to announce the IPO price by end of June. However, on that day they never announce the IPO price instead they said will relaunch the IPO on 3 Jul 2017. (what's a joke, I think this is another record in Malaysia's IPO market) Then what happen to the retail investor who already subscribe the IPO price at RM8? (luckily they found the answer on the below)

On 3 Jul, the company announced relaunch IPO at refer price of RM6.50 to RM8. They also offers to buy back retail shares, this is another record in history of Malaysia stock market, as I never recall we have this kind of arrangement for other IPO. (In fact, I also receive calls from few clients inquiry on what's this buy back, refund and relaunch work)

On 4 Jul, they announced the IPO price fix at RM6.50, (from original RM8), they also offer to buy back from affected investors (only for those who paid RM8 to apply for IPO), this representing about 2.57% only base on their enlarged share capital, which would cost them RM384.8 million at RM6.50 for 59.2 million shares.

For the affected investors, they will get refund of RM1.50. For example, if one apply 2,000 units, initially pay for RM16,000. Now, IPO price at RM6.50, so, 2,000 units now need RM13,000. Refund is RM16,000 - RM13,000 = RM3,000. At the same time, the affected investors will be dispatched a request form for share buy back. If they want to sell their shares to Lotte, they can do so start from 12 Jul till 18 Jul 2017. Once receive the form, Lotte will pay them within 10 working days.

For the institutional offering, they received strong demand from both Malaysia and global institutional after revised IPO price to RM6.50 and reduce the shares offer for sales by 20%. (now offer for 524.22 million shares compare of initial plan 740.48 million). They will also take up the remaining shares not subscribe by retail investors. At this price, their market cap now around RM14.60 billion. (compare to initial RM19.7 billion) So, now for this IPO, they will raise around RM3.77 billion compare to initial plan of RM5.9 billion, however, they said this will not affect their plan to develop and construction of new plant in Indonesia.

Ok, after telling all these story and see the record of first kind in Malaysia, what do you think this stock will perform on 11 Jul 2017? My opinion, they treat the affected investor fairly by providing buy back retail shares, in other word, they give some sort of capital guarantee for these investors to sell their shares to Lotte should the market price below RM6.50. However, for the market to trade at RM6.50 in first few days, I think is quite impossible, since now they have strong demand from Institutional after they fix IPO price at RM6.50 and leave some money on the table for them. (at RM6.50 the PE is 12x base on EPS of 57.02 cents) Even they have reduce the size of IPO shares, they are also one of the biggest IPO since 2012.

Finally, if you are one of the affected investors, I want say, congratulation! Because, all the unit you apply from the IPO, you will get all, then you can decide on 11 Jul, if you want to sell the shares to Lotte or not.... if market open above RM7, then you can smile all the way to the bank and go for holiday if the amount is big!