Lotte falls short of funding

Company will have RM2bil less from listing exercise due to lower pricing from the market

PETALING JAYA: The Lotte Chemical Titan Holding Bhd initial public offering (IPO), which has had to be repriced at a lower value, will raise about RM2bil less from earlier expectations.

Nevertheless, it is still the biggest public offering in the country since 2012.

Lotte Chemical, which had priced its IPO at RM8 per share when the prospectus was launched last month, has been repriced at RM6.50 per share. The company has also cut the number of share issuances by almost a quarter from the initially planned 740.5 million.

In a statement yesterday, the inte- grated petrochemical producer said it has raised approximately RM4bil from its IPO.

“The institutional offering of the IPO received strong demand from both Malaysian and global institutional investors, and was oversubscribed.

“Global institutional investors made up approximately 30% of the total demand received.

“Lotte Chemical also secured five cornerstone investors – Permodalan Nasional Bhd, Maybank Asset Management Sdn Bhd, Maybank Islamic Asset Management Sdn Bhd, Eastspring Investments Bhd and Great Eastern Life Assurance (Malaysia) Bhd – who have severally and not jointly subscribed for an aggregate of 136 million IPO shares, representing 23.4% of the base offering of the IPO,” the company said in the statement.

The money raised is RM1.9bil lower than the RM5.9bil in gross proceeds expected to be raised from the RM8-per-share offer.

Meanwhile, Lotte Chemical’s president and chief executive officer Lee Dong Woo said the response from investors in Malaysia and globally reflected their trust and confidence in the company and its growth prospects.

“I am pleased that our strategy to restructure the IPO has worked out positively. While the total amount raised is less than originally targeted, the IPO raised almost RM4bil and secured the participation of quality long-only Malaysian and global institutional investors to ensure a strong shareholder base for the company.”

“Of the amount raised, RM2.8bil will be used to partially fund the development of an integrated petrochemical facility in Indonesia, RM620mil for the construction of a new polypropylene plant in Johor and RM220mil allocated for upgrading its existing naphtha cracker,” the company added.

Notably, in a earlier filing with Bursa Malaysia yesterday, the company confirmed that the change in proceeds is not expected to materially affect the ability to fund the development and construction of the integrated petrochemical facility.

It had initially planned to use RM4.91bil to fund the construction of an integrated petrochemical facility in Merak, Indonesia.

Recall that Lotte Chemical planned to invest RM15.5bil – that was to be partially funded by RM4.9bil from the IPO proceeds – in the Indonesian integrated petrochemical facility on a new piece of land located next to its existing polyolefin facility.

Besides that, the company planned to borrow and use internally generated funds to part-fund the project, said sources.

“Lotte’s growth story is intact and the shortfall in funds raised does not impact its expansion plans.

“It is in a net cash position, giving it room to potentially raise more

debt,” said a source.

In a recent report, Hong Leong Investment Bank Research noted that Lotte Chemical’s capital expenditure (capex) for the next five years till 2021 would be RM16bil.

“The bulk of this would consist of the integrated petrochemical facility in Indonesia amounting to RM15.1bil in total, of which 67% of the capex would be funded through borrowings,” it wrote.

The research firm said the company had a net cash position of RM965.1mil.

Lotte Chemical said the 524.21 million shares offered to institutional funds were fully subscribed.

The company said the institutional and retail price had been fixed at RM6.50 per IPO share and the difference of RM1.50 would be refunded to the successful retail investors.

The IPO also included a retail offering of 49.36 million shares for the public and 6.417 million for directors, eligible employees and staff of the subsidiaries, which was also under-subscribed.

In addition, the unsubscribed shares under the retail offering, which were underwritten by the joint underwriters, were clawed back and reallocated to the institutional offering as set out in the prospectus, it added.

The buyback offer provides an opportunity for the affected investors who do not have knowledge of the new IPO offering size to act on or reconsider their investment decision. Lotte Chemical

Meanwhile, as part of its move to ensure the stock price is stabilised, Lotte Chemical said that it would be making a share buyback offer in respect of the IPO shares subscribed by retail investors and non-cornerstone bumiputra investors.

The exercise involves up to a maximum of 59.2 million shares, representing 2.57% of the company’s enlarged share capital, at a final retail price of RM6.50 per share.

The buyback offer will involve RM384.8mil, assuming all the affected investors accept the offer, and is to be funded from the IPO proceeds.

The offer period would be for five market days starting July 12, the company said.

Lotte Chemical is slated to list on the Main Market of Bursa Malaysia next Tuesday.

“The buyback offer provides an opportunity for the affected investors who do not have knowledge of the new IPO offering size to act on or reconsider their investment decision.”

The company said it would seek the approval of its current sole shareholder, Lotte Chemical Corp (LCC) of South Korea, prior to the listing date.

“Upon listing, it is expected that LCC will hold 73.7% of the company, assuming the over-allotment option of 27.76 million shares is exercised, and it is envisaged that no other shareholder will hold shares representing 5% or more of the company.

“As such, the buyback offer will not result in any take-over obligations under the rules on takeovers, mergers and compulsory acquisitions.”

Based on the RM6.50 IPO price, the company would have a market value of some RM15bil.

In comparison, Petronas Chemicals Group Bhd, which is trading at a price earnings multiple of 15.9 times, has a market cap of RM57.2bil.

The global coordinators for the IPO are Credit Suisse, JPMorgan and Maybank Investment Bank Bhd. The bookrunners are CIMB Investment Bank, HSBC and Nomura.