Wider appeal after revamp

Bankers: Change in Lotte Chemical offer price will likely see higher take-up rate

PETALING JAYA: A change to the structure of the Lotte Chemical Titan Holding Bhd initial public offering (IPO) by bankers for today is expected to see big foreign institutional investors take up the shares on offer after the deal was restructured to cater to global-investor appetite.

At a new offer price of RM6.50 a share compared with the previous range of between RM7.60 and RM8 a share, Lotte Chemical shares are expected to see interest from investors who were hesitant to commit before.

“There was strong interest from Malaysian government-linked companies and institutional investors but there was not enough interest from foreign investors at the previous range (of between RM7.60 and RM8 a share),” said a source familiar with the deal. “Global investors will now be attracted to the lower price as there was significant demand at that level.”

With the pricing now relaunched at a more palatable price to global investors, expectation is that the IPO would be fully taken up.

One of the key attractions with the new price is that investors would be buying Lotte Chemical shares at a much lower forward price to earnings ratio than before, leaving room for upside post listing.

Lotte Chemical has successfully secured five domestic cornerstone investors.

They are Permodalan Nasional Bhd, Maybank Asset Management Sdn Bhd, Maybank Islamic Asset Management Sdn Bhd, Eastspring Investments Bhd, and Great Eastern Life Assurance (M) Bhd.

The lower price for the IPO is expected to draw in further quality global investors.

Lotte Chemical would have a market capitalisation of RM16.04bil when listed at RM6.50 a share. Petronas Chemicals Group Bhd is trading at a current price to earnings ratio of 15.78 times with a market capitalisation of RM56.8bil.

A restructured deal could also see a change to the amount Lotte Chemical intends to raise from the market. How that would change from the RM5.9bil the company originally wanted to raise from the market would be known after the IPO is relaunched today.

One of the reasons for the patchy global interest for Lotte Chemical’s IPO is competition from Indonesian petrochemical firm PT Chandra Asri Petrochemical which has plans to raise US$460mil from the sale of shares for its expansion. Another reason is the fluctuating price of crude oil which does affect pricing of petrochemicals.

In its prospectus, Lotte Chemical said proceeds from its IPO would be utilised over the next 12 to 36 months to finance the company’s expansion in Malaysia and Indonesia, with the majority of the gross proceeds used to partially fund the development of a RM15.5bil integrated petrochemical facility in Indonesia.

Lotte Chemicals had plans to use the money raised to also construct a new polypropylene plant in Johor to increase production by 200 kilo tonnes per annum (KTA). Lotte Chemical owns two naptha cracker plants with a combined capacity of 700 KTA in Malaysia.

The listing of Lotte Chemical on Bursa Malaysia is slated to take place this month. Credit Suisse, JP Morgan and Maybank are joint global coordinators for the Lotte Chemical deal.

Global investors will now be attracted to the lower price as there was significant demand at that level.

A source