UMW unit to launch IPO prospectus on Oct 3

PETALING JAYA (Sept 26, 2013): UMW Oil & Gas Corp Bhd (UMW-OG), the oil and gas (O&G) unit of UMW Holdings Bhd, is expected to launch the prospectus for its much-awaited initial public offering (IPO) on Bursa Malaysia next Thursday, according to people familiar with the matter, with listing slated for Oct 31, 2013.

This comes close on the heels of Westports Holdings Bhd's impending listing on Oct 18.

Industry observers said the back-to-back listing of two sizable government-linked companies could help sustain investors' interest on the local bourse in the near term.

UMW-OG's IPO, which is expected to rake in up to RM2.36 billion, will be the country's largest this year after Westports' share sale of up to RM2.03 billion.

According to a draft prospectus released on June 19, 2013, UMW-OG is selling as many as 843.2 million shares, or 39% of its enlarged share capital of 2.162 billion shares. The indicative offer price for the retail tranche is set at RM2.80 each, with the final retail price to be pegged to the institutional price which will be determined via a book-building process.

Based on an indicative price of RM2.80 apiece, the total market capitalisation of UMW-OG will be RM6.1 billion upon its listing. This would, however, fall behind Westports' total market capitalisation of RM8.53 billion post-listing, based on its indicative offer price of RM2.50 per share.

"At an implied market capitalisation of RM6.1 billion, the IPO is priced at a historical price-to-earnings (P/E) ratio of 82 times on FY12 earnings," said an O&G analyst.

"Nevertheless, the high P/E valuation could come off sharply as UMW-OG is expected to see a sharp earnings rebound ahead due to an absence of several one-off lumpy expenses that had dragged down FY12's performance," he added.

UMW-OG reported a 6% drop in net profit to RM73.83 million for the financial year ended Dec 31, 2012 (FY12) from RM78.21 million a year ago, due to higher other operating expenses. However, revenue for FY12 grew 43% to RM846.11 million from RM591.85 million, driven by its drilling services segment.

Under the IPO, UMW-OG has earmarked 648.6 million shares or 30% of its enlarged share capital to institutional investors and the remaining 194.58 million or 9% for retail investors.

A source told SunBiz that the IPO includes a greenshoe option that allows UMW-OG to sell an additional 126.5 million shares or about 6% of its enlarged share capital to meet demand.

In its draft prospectus, UMW-OG said the proceeds raised from the IPO will be utilised for the repayment of existing debts, capital expenditure and working capital purposes as well as to pay listing expenses.

In a report dated May 17, 2013, Kenanga Research said the listing will enable the UMW group to unlock the value of its investment in UMW-OG as well as provide the opportunity for UMW-OG to expand its business and grow its market position.

"With the listing, UMW-OG will have direct access to the equity capital market, which will enable it to have greater capital management flexibility," the research firm added.

UMW-OG is principally involved in the upstream sector of the O&G industry, providing offshore drilling and oilfield services, which includes engineering and maintenance services.