Fibre optic cable owner NetLink NBN Trust has priced its initial public offering (IPO) at 81 cents a unit, making the $2.3 billion offer size the biggest seen here in six years.
NetLink NBN's IPO comprises a public offer of 185 million units, and a placement tranche of 2.7 billion units that is believed to be two times subscribed.
With an offer price of 81 cents per unit, IPO investors can expect an annualised dividend yield of 5.43 per cent for the period to March 31 next year, and a 5.73 per cent yield the year after that.
NetLink NBN had tested a pricing range of between 80 cents and 93 cents per unit during recent investor roadshows. The offer price announced yesterday is at the bottom end of that range, but chief executive Tong Yew Heng said the price is where he would like it to be.
"We had a very strong reception (and) we have attracted a very diverse mix of high-quality investors," Mr Tong said yesterday.
Mr Vijay Vaidyanathan, head of South-east Asia capital markets at Morgan Stanley, said the IPO was priced for "positive after-market performance", adding: "Keep in mind that this is a truly large transaction."
NetLink NBN's IPO is Asia's second largest this year, after South Korean mobile-games maker Netmarble Games, which raised US$2.3 billion (S$3.2 billion) in April, he said.
It will be the biggest here since Hutchison Port Holdings Trust raised US$5.5 billion in 2011.
Some had said the relatively wide price range of 80 cents to 93 cents marketed earlier reflected the trust managers' uncertainty about how the market would value its business, which is rather boring but resilient.
NetLink NBN reported an Ebitda (earnings before interest, taxes, depreciation and amortisation) of $220.6 million in the 12 months to March 31, and that number is projected to grow by just 4.3 per cent each year until March 2019.
Ebitda is a gauge of the trust's ability to generate cash (and dividends) from its core assets which, for NetLink NBN, refer to its sprawling fibre network that supports high- speed Internet access in 1.1 million households islandwide.
About 60 per cent of its revenue comes from residential connection charges for which it receives a monthly recurring fee. As a "wholesaler" to retail service providers like Singtel, StarHub, M1 and MyRepublic, it gets a cut of what consumers pay them each month and is indifferent to competition.
To be sure, though, NetLink NBN is not a monopoly by regulation. Rather, it enjoys a monopoly status owing to high entry barriers.
As part of a nationwide masterplan, NetLink NBN was given a $732 million government grant and began building Singapore's Next Generation Nationwide Broadband Network in 2009. It would be difficult for a newcomer to build a fibre network with the same extent of coverage today.
But NetLink NBN has no monopoly on non-residential connections, where it has a 32 per cent market share behind Singtel, the market leader.
About $1.1 billion of the IPO proceeds will be used to repay all outstanding loans from Singtel, and another $93 million will be used to acquire 27,000 lead-in ducts from Singtel.
Singtel will also retain a 24.99 per cent interest in the trust post-IPO.
The public offer closes at noon next Monday.
NetLink NBN will have a market cap of $3.1 billion when it lists next Wednesday. Fewer than 60 listed firms here have a market cap of over $3 billion, according to SGX StockFacts.