Capitamalls Asia

CapitaMalls Asia ("CMA") has priced its IPO at S$2.12 per share for a total deal size of S$2.47 billion. The final price was near the mid point during its bookrunning exercise at between $1.98 to $2.39.  The offer will end on Nov 23 at 12pm.

According to the Company, the demand from institutions was strong and the retail tranche was cut back from 12% to 8% of the total deal size but even at 8%, the retail offering of $197m will make it as one of the largest retail offering in Singapore since Singapore Telecom in 1993. 

Investors were "pitched" into buying CMA on the basis of being a consumer play with unique exposure to shopping mallss across Asia, including high growth assets in countries like India and China. If you have seen the advertisements in the papers during the book building period, you would have "bought" into the compelling growth story as well.

According to Finance Asia, at the final price, CMA is valued at 1.55x current book value (expensive!) and it is coming to market at a slight discount to HK-listed Hang Lung Properties, which trades at 1.8x.  However, if the two listed REITS were removed from CMA's portfolio, the other business are priced at 1.8x book! At the time of listing, CMA will have a portfolio of 86 retail properties across 48 cities in 5 Asian countries.  Of the 86 properties, 59 are already completed shopping malls in Singapore, China, Malaysia, Japan and India while the other 27 are at various stages of development. 

Personally, i think that the IPO is over-priced and that SGX is bending backwards to allow the Capitaland to "double dip", i.e. to eat from the honey pot twice.  Why should Capitaland, with no change in its business or operations, be allowed to "hive" off its shopping malls and then 'list its hived off unit" separately, at a premium to the parent company. Basically, it allows Capitaland to "make some money" from the IPO "out of nowhere". From an investors perspective, if you are an investor of Capitaland, CapitaMall Reit or CapitalRChina Reit, there will possibly be many situations where conflicts of interest may arise. Just to give you some examples, if CMA wants to divest a mall in China, should it sell to Capital Retail China REIT or to a third party; or after Capitaland has developed a mall in Singapore, should it sell to CapitaMall or to CMA? In addition, some of the directors of CMA are also the directors of the related listed companies.  After the IPO, Capitaland will hold 70% of CMA.

While positive sentiments from "overwhelming" institutional investors may help to boost its share price on the first few days, i would avoid this IPO for its pricy valuation and limited upside. There are cheaper alternatives around and to pay 1.8x book for the assets might not be an wise one, it is like paying $1.8m for an apartment that is worth only $1m.