19/03/2012
Anthony Galliano
Bangkok Post
Cambodia’s first initial public offering is fast approaching, and demand is expected to be robust.
Bookbuilding, the process during which bids are taken and a price set for shares, ended last Wednesday for Phnom Penh Water Supply Authority (PPWSA). The final offering price will be announced before subscriptions begin on March 29, with the listing date set for April 18.
PPWSA intends to issue 13.04 million ordinary shares with a par value of 1,000 riels (7.70 baht or 25 US cents) each. This represents a 15% float. Eleven percent of the float will be allocated to the company’s employee stock option plan.
The state, represented by the Ministry of Economy and Finance, will retain 85% ownership or 73.9 million shares.
The shares will be available to both Cambodian citizens (a 20% allotment) and non-Cambodians. Permitting foreign investor participation should dramatically improve the prospects for the IPO as this will be the only publicly traded equity exposure in Cambodia.
TongYang Securities (Cambodia) Plc, an affiliate of South Korea’s TongYang Securities Inc, is the sole underwriter, bookrunner and lead manager.
The indicative offering price for PPWSA has been set in a very wide range from US$1.00 to $1.57 a share.
With a maximum of 10.4 million shares available to foreign investors, at the highest end of the offering price range, it would take only US$16.5 million to fully subscribe to the maximum foreign allotment. There is no mention of a greenshoe option, a provision allowing the underwriter to sell more shares if demand warrants.
PPWSA has a lot going for it. The company is the monopoly water supplier covering Phnom Penh’s eight districts as well as Takmao town to the north.
Licences to new suppliers are granted by the government in areas where there is no existing water supplier.
Despite being a state-owned monopoly, PPWSA has emerged as an internationally recognised leader in its industry. Its trophy case includes the Water for All award from the Asian Development Bank in 2004, and the Stockholm Industry Award Water Award in 2010.
The jury for the latter award noted that PPWSA was self-sufficient company, operating without subsidies from the state, providing 24-hour service and 90% coverage to a city of 1.3 million, and fully recovering its costs as it continues to develop both its infrastructure and management.
The company’s revenues were were $26 million in 2010, up 10.4% from 2009, and were estimated to have increased by 8.7% in 2011. Net income for 2010 was $7.5 million, a 13.2% increase from 2009. Net income will likely be flat in 2011. Earnings before interest, taxes, depreciation and amortisation increased 9% in 2010, and is estimated to have increased 3% in 2011.
From 2005-10, the company’s production capacity increased by 28%.
The proceeds of the offering will be used to reduce debt and fund expansion to improve future revenue growth and earnings. The price-to-earnings ratio is considered reasonable at 11.5 to 18 times, in line with other water utilities around the world. However, the offering price is likely to be four to 5.9 times net asset per share, which is quite expensive. The company is expected to pay a dividend, providing a cash flow to investors.
It is not unusual for an underwriter to price an IPO in such a way that it is well positioned for a successful opening day, which makes investors happy, and creates a buzz in the media as well.
Yelp, the online consumer review site, recently debuted on the New York Stock Exchange with a targeted range of $12-14, opened at $15, and traded up 64% its first day.
PPWSA may not have a similar run, but odds are that it will do quite well.
Anthony Galliano is the chief executive of Cambodian Investment Management, e-mail anthonygalliano@covenantim.com
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