Ranhill may have to scrap China water business expansion: PublicInvest

PETALING JAYA: Ranhill Holdings Bhd may have to abort its plans to expand its water business projects in China after it recently fixed the final price of its initial public offering (IPO) at a 30% discount from its indicative retail price of RM1.70 a share.
In note yesterday, PublicInvest Research said as result of the lower final price and smaller IPO of 322 million shares instead of 375 million shares, the estimated gross IPO proceeds would be reduced to RM371.1 million from the initial target of RM637.5 million.
As a result of the shortfall in IPO proceeds, the research house opined that Ranhill will only be able to fully repay Ranhill Powertron Sdn Bhd’s (RPI’s) outstanding Islamic medium-term notes (IMTN) of RM220 million and partial repayment of RM100 million sukuk.
“As such, our earlier forecast of RM105 million net profit after tax and minority interest (patami) in FY16, which included potential earnings growth from China’s water business, may not be achievable,” PublicInvest Research said.
It had earlier assumed an additional RM30 million profit contribution from China’s water business due to the full acquisition of RWT (Cayman) and business expansion.
Last Friday, Ranhill fixed its final IPO price at RM1.20, a 50 sen or 30% discount from its indicative retail price of RM1.70 due to poor response to the offering. The balance of 50 sen will be refunded to successful investors without interest.
Ranhill’s earlier offering consisted of 475 million shares which included 375 million new shares and 100 million shares on offer for sale.
Due to the undersubscription of the IPO shares, PublicInvest Research said, vendors had decided not to proceed with the offer for sale portion.
In the retail portion of 120.82 million shares, only 16.03 million shares were subscribed by investors and the balance of 104.79 million shares will be taken up by the underwriters.
With regard to the institutional allocation, 55.53 million shares were allocated to bumiputra investors and 145.96 million shares allocated to Malaysian and foreign institutional and selected investors.
According to PublicInvest Research’s source check, the amount of funds raised from the IPO has yet to be confirmed.
“However, we understand that for the unsubscribed retail portion, the underwritten price would be RM1.05, after deducting the listing expenses,” it said.
PublicInvest Research said, taking into account a lower issue price, it has revised downwards Ranhill’s FY16 earnings estimate by 31% and fair value to RM1.25.
Public Invest Research kept its price earnings multiple of 13 times for the power business and 16 times for the water segment.