Lotte Chemical Titan slashes IPO size by 20%

PETALING JAYA: In a move rarely seen in corporate Malaysia, Lotte Chemical Titan Holding Bhd slashed the size of its initial public offering (IPO) – the biggest in the local market this year – by more than 20% after its prospectus launch.
Following that, the gross proceeds to be raised will be reduced to RM4.64 billion from RM5.92 billion.
Lotte Chemical Titan told Bursa Malaysia Securities yesterday that it reduced its institutional offering by 160.48 million shares or 23.4%, after taking into account the overall demand through price discovery.
The group said the institutional offering will now involve only 524.22 million shares, compared with the original 684.7 million shares on offer.
Despite the reduction in the institutional offering, Inter-Pacific Securities Sdn Bhd head of research Pong Teng Siew is of the view that Lotte Chemical Titan will be able to keep its IPO price at RM8.00 per share.
Pong’s fair value of RM8.40 is based on 9.4 times enterprise value/earnings before interest, taxes, depreciation and amortisation (ebitda), supporting a 5% upside potential against the RM8.00 IPO price.
He noted that Lotte Chemical Titan’s IPO size is huge and there is insufficient market liquidity to support it. “It’s too big to be absorbed in the current market environment,” he told SunBiz.
Pong said Lotte Chemical Titan would have to resort to borrowings and be less aggressive in its capital expenditure expansion given the lower proceeds to be raised from its IPO.
Citing that the petrochemical industry has reached its peak, he said Lotte Chemical Titan’s outlook does not seem to be favourable with profit margins expected to drop. Nonetheless, he stressed that Lotte Chemical Titan’s cash flow remains strong.
Due to the unexciting outlook for the petrochemical industry, Pong does not envisage investors holding Lotte Chemical Titan shares for a long period of time.
“We even foresee a drop in its earnings, nothing great as far as it is concerned,” he added.
With the reduction in the size of the institutional offering, Lotte Chemical Titan’s total number of IPO shares will be reduced from 740.48 million to 580 million, representing a reduction of 160.48 million shares or 21.7%.

The IPO share price determination will take place today. The allotment of the IPO shares to successful applicants and the listing date remain unchanged on July 7 2017 and July 11 2017, respectively.