Intriguing listing

Berjaya Sports Toto Bhd’s (BToto) move to list its number forecast operation as a business trust in Singapore ahead of what is expected to be a hotly contested general election in Malaysia has focused undue attention on the gaming company and its owner Tan Sri Vincent Tan.

The proposed listing also marks a significant shift in Tan’s strategy to court foreign investors for the jewel in the crown of his sprawling business empire.

There is a view that listing Sports Toto Malaysia Trust (STM-Trust) in the city-state will internationalise the company and not make it an easy target should there be a political upheaval in Malaysia. Some see it as a corporate exercise that will allow local shareholders of BToto to monetise their investments in Singapore.

However, executives close to Tan say it is a simple corporate exercise to add shareholder value and nothing more.

“It’s just a corporate exercise to unlock asset value and to gain access to a bigger pool of international investors whose portfolios are not required to be syariah compliant,” says BToto’s executive director Freddie Pang when asked about the issues surrounding the proposed listing of STM-Trust.

Pang’s explanation comes close to what Tan is known to have explored — unsuccessfully — in the past: to unlock the value of Malaysia’s most profitable number forecast operation

(NFO), now valued at close to RM6 billion.

About two years ago, there was speculation that the cash-generating BToto would be taken private. Names such as Carlyle Group and Providence Equity Partners were among those that surfaced as possible contenders to partner Berjaya Group in taking over the NFO.

Now, Tan has decided on a business trust, which is deemed a suitable structure to unlock asset value without losing control of the cash cow.

Under the proposed listing, BToto will raise slightly more than RM1 billion, which will be paid out to shareholders. The beauty of a business trust is the leeway it will have when it comes to declaring dividends. In the future, unlike in the current BToto structure, STM-Trust will be able to declare dividends based on cash flow instead of distributable profits. Hence, there could be more generous dividends for BToto’s shareholders.

From a BToto shareholder’s view, this is certainly a good way to unlock asset value. It is similar to property companies monetising their assets by setting up real estate investment trusts.

BToto’s shareholders, in fact, have unanimously approved the proposal to list STM-Trust, which will hold the gaming operation, in Singapore.

Nonetheless, the corporate exercise has come under close scrutiny, raising criticism that the offshore listing will channel money out of the country. Earnings generated in

Malaysia will be directed to Singapore for STM-Trust to declare as dividends. Some quarters say this is a concern, given that the NFO business is very much domestic-driven.

Furthermore, BToto has said it is considering distributing units in STM-Trust to its shareholders. If this happens, the shareholders will have the choice of keeping the dividends in offshore accounts.

According to Pang, if the listing of STM-Trust is perceived to be a move to take money out of the country, the same criticism should be levelled at local listed companies with foreign shareholders as well as those with dual listings.

“Even for companies listed on Bursa, the moment they declare dividends, foreign investors take the money out of the country. Isn’t that the case?” he asks.

He concedes that the listing of STM-Trust in Singapore will create a way for shareholders to park their money offshore, but insists that it was never BToto’s intention to facilitate an outflow of money.

“We are not the only one [listing abroad]. There are many around, for instance IHH Healthcare Bhd and Media Chinese International Ltd,” he remarks.

Pang also denies that the listing of STM-Trust in Singapore is a hedge against political risks. “That was never on our mind … should the government want to amend the policy, it

could go ahead with it regardless.”

The reason for the listing is to improve capital management, he says. “One aspect of it is that we will not be constrained by profit when we declare dividends. So, shareholders

could benefit more.

“All this while, we explored different channels to improve capital efficiency, including a few rounds of capital repayment to return spare capital and dividends.”

Pang says BToto started working on the business trust plan back in the fourth quarter of 2011. “We sought the advice of Securities Commission Malaysia when we were working on the business trust plan back in October or November 2011.

“We waited for the local framework to be announced, but there wasn’t any news on it.”

When the Singapore Exchange unveiled its business trust framework — the only one in the region — naturally, BToto opted to list across the Causeway. “With Singapore’s robust liquidity and low interest rate environment, we felt it was an opportune time to tap that market,” Pang explains.

STM-Trust is expected to make its debut on the Singapore Exchange this quarter.

Upon completion of the listing, as the single largest shareholder, BToto will distribute the proceeds of over RM1 billion it receives from the IPO to shareholders. In addition, it is considering distributing all 3.89 billion units or a substantial portion of them to shareholders.

Pang says STM-Trust will seek a secondary listing on Bursa Malaysia in conjunction with the distribution of the trust units to BToto’s shareholders. “This will not happen so soon. There will be a six-month moratorium after the IPO. We have to wait until then to do the distribution and dual listing.”

Asked if the dual listing was a condition imposed by the local authorities on BToto to curb the outflow of money to offshore investment accounts, Pang says dual listing has always been a part of their plan.

“There are about 35,000 BToto shareholders. We think it will be more convenient to shareholders when the trust is also listed here. Shareholders don’t need to set up foreign accounts in Singapore,” he explains.

The listing exercise, which was unveiled in June last year, is undeniably value-accretive to BToto’s shareholders.

That said, BToto may not have got the timing right, considering the upcoming general election. Furthermore, the performance of the few business trusts listed in Singapore has been uninspiring post-listing.

However, analysts say business trusts are still a new investment asset class and those listed so far are in an industry that is going through a bad patch.

“Business trusts have become quite a ‘bad word’, in part because those in Singapore are largely made up of shipping companies that belong to a cyclical industry and are not doing too well now,” says an analyst.

“Business trusts are still relatively new ... A lot of funds still don’t invest in them.”

Hence, some analysts fear STM-Trust may receive a cold shoulder in the island republic.

Pang agrees that this may not be the perfect time to undertake an IPO exercise as foreign investors would be concerned about policy risk after the general election.

“What we tell the investing public is that the gaming business is resilient regardless of economic conditions. Also, gaming companies have contributed substantially to government coffers.”

In FY2012 ended April 30, BToto paid the government RM800 million in taxes and duties plus contributions.

BToto has yet to embark on an “aggressive roadshow” to pitch STM-Trust to prospective investors, Pang says. “If there are few takers, we will distribute more to BToto’s shareholders. It is not really a big concern to us. After all, it is not a fundraising exercise.”

Cross-border listings on the rise

A growing number of Malaysian-owned companies have gone beyond our shores to raise funds. Singapore’s increasing popularity as a fundraising destination could probably be due to the warmer diplomatic relations between its government and that of Malaysia.

Soon, Berjaya Sports Toto Bhd will be listing its business trust — Sports Toto Malaysia Trust(STM-Trust), which holds its number forecast operation — in the city-state.

The most recent listing was that of government-linked healthcare group IHH Healthcare Bhd, which sought a dual listing on Bursa Malaysia and the Singapore Exchange (SGX).

The healthcare group’s initial public offering was among the world’s top three IPOs last year. It was also the world’s second biggest listed healthcare provider after the US-based hospital operator HCA Holdings Inc.

Apart from its core businesses — the integrated Parkway and Pantai healthcare businesses in Singapore and Malaysia — IHH Healthcare also owns Acibadem, a leading player in the Turkish private healthcare sector, and IMU, a renowned private medical university in Malaysia. The healthcare group also has operations in China, Hong Kong, India, Vietnam and Brunei.

Other notable listings have been that of Genting Singapore plc and Malaysia Smelting Corp Bhd (MSC). MSC, the world’s third largest integrated tin producer, made a secondary listing on the SGX in January 2011.

The exercise, which raised S$40.1 million (RM99 million) via the sale of 25 million shares, was known as the first secondary listing of a Malaysian stock on SGX. MSC, a subsidiary of SGX-listed The Straits Trading Co Ltd, has both tin mining and smelting capabilities, with operations mainly in Malaysia and Indonesia.

Genting Singapore, which is 53.9% owned by Genting Bhd, is listed on the SGX with a market capitalisation of S$17.5 billion. It operates Resorts World Sentosa, Singapore.

Thanks to the dual listing of IHH Healthcare, securities that are listed on Bursa and SGX are now fully fungible, meaning that investors can transfer their shares from Bursa to trade on the SGX and vice versa.

A number of Malaysian entities have announced their intention to list their overseas operations. AirAsia Bhd, which has already listed its Thai operation in Bangkok, is looking to list its Indonesian operations this year in an exercise that could raise up to US$200 million while CIMB Bank Bhd is planning its secondary listing in Thailand to bolster its presence as a regional player.

There are different reasons for companies to float shares abroad, say investment bankers. In many cases, companies’ overseas operations have grown to a certain size that

they are mature for a listing exercise that will unlock their value, for instance Parkson Holdings Bhd, which listed its operations in China on the Hong Kong Stock Exchange (HKEx) in 2005.

Six years later, the retailer listed its Asean operations, Parkson Retail Asia Ltd, on the SGX. The company owns a network of retail stores across Malaysia, Vietnam and Indonesia.

More often than not, the rationale for a foreign listing was to open the door to more international investors. This is even more crucial for the non-syariah-compliant companies, such as gaming companies, considering that the dominant investors on Bursa — the government-linked institutional funds — are syariah compliant.

“What we are doing is another way to get foreign investors by taking the product to them instead of the traditional way of inviting them to Malaysia to invest,” Freddie Pang Hock Cheng, the executive director of Berjaya Corp Bhd and Berjaya Sports Toto Bhd tells The Edge.

“With Singapore’s robust liquidity and low interest rate environment, we felt that it was an opportune time to tap the market,” says Pang on the group’s rationale for forming a business trust and listing it in Singapore.

Other cross-border deals in the past include GMO Ltd on London’s AIM market, Nagacorp Ltd on the HKEx, Texchem-Pack Holdings Singapore Ltd on the SGX and iProperty.com on the Australian Stock Exchange (ASX), while the latest cross-border IPO was little-known Fusionex International plc, a Malaysian software company which defied a lacklustre London stock market to raise £12 million in its IPO on the London AIM market in December 2012.

The right stock exchange for a cross-border listing can benefit a company with multinational operations by providing access to additional capital, favourable valuations, improved liquidity and visibility, and enhanced investor perception.

In fact, most of the Malaysian-owned companies listed abroad have international operations.

The iProperty Group, which has its headquarters in Kuala Lumpur, operates online property portals in Malaysia, Hong Kong, Macau, Indonesia and Singapore, and has investments in India and the Philippines.

Today, iProperty.com.my dominates the Malaysian online property scene. Established in 2003, the portal, previously owned and operated by Ailligent Sdn Bhd, was acquired by Catcha Media Group and JDI Ventures in 2007 and listed on the ASX in the same year.

Cocoa producer Guan Chong Bhd announced in April last year its plans for a secondary listing on the SGX, but the plan was aborted in August.

For some Malaysian companies, being listed on a reputable foreign stock exchange is a stamp of credibility. One such company is Fusionex, a Malaysian software firm.

Analysts say undertaking a cross-border IPO in an established listing destination abroad provides investors a comfort factor when evaluating the appeal of the issuer. In fact, Asia is increasingly a source of both issuers and capital, with the highest level of cross-border activity.

Between 2002 and 2011, there were 171 IPOs from Asia-Pacific into the Americas, raising US$27 billion, and 155 IPOs from Asia-Pacific into Europe and the Middle East, raising US$19 billion, according to Ernst & Young. There were also 239 deals within Asia-Pacific itself, raising US$17 billion.

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