It had all started so well for Ranhill. With its MR753m ($253m) IPO oversubscribed before bookbuilding had even begun on June 28, the deal looked straightforward. A good name, a good business and good demand — what could possibly go wrong?
But even then there were hints that something might be amiss. On the day the deal was set to open, June 28, Bursa Malaysia requested additional documents. Bookbuilding was pushed back to July 4. While it is unclear whether this delay had anything to do with the IPO’s subsequent cancellation, it is worth noting that Ranhill did not offer a detailed explanation for the delay.
Despite that hiccup, though, things were still looking good when pricing was announced on July 15. With a book that was covered across the range and heavily backed by a 30% cornerstone tranche, bankers priced the deal at the top of a MR1.70-MR1.85 range.
This is when things started to go wrong. While the banks were busy allocating orders, one of Ranhill’s business affiliates, Perunding Ranhill Worley (PRW), had its licence suspended by Petroliam Nasional (Petronas) on July 17 after a review of the LNG Regasification Facilities Project in Melaka.
As the projects PRW receives from Petronas account for 16.6% of Ranhill’s oil business and 8.1% of its gas business, you would have expected most companies to have informed bankers and investors right away about a possible adverse effect, especially since this very issue was flagged up as a potential risk in the deal prospectus.
But no. The Malaysian conglomerate’s decision not to announce the news at that point probably hinged on a belief that the suspension would be removed before the day of listing. As it turned out, this was partly what happened — the suspension of PRW’s upstream activities was lifted on July 25 (although the ban on downstream activities remained).
But that doesn’t excuse the company’s behaviour. To make matters worse, the deal’s principal adviser Maybank and joint global co-ordinator CIMB were also left in the dark. Only when the local media started reporting on PRW’s licence suspension did Ranhill decide to go public.
On July 24, a full week after the suspension came into effect, Ranhill announced that it was “deferring” the listing of the shares because of the problems. But even at that stage it was still insisting that the deal would go ahead.
The damage, sadly, had already been done. Bankers predicted a huge secondary sell-off if the deal proceeded amid the negative publicity. Ranhill was advised to cancel the IPO, and it was eventually pulled on July 26.
The costs for the company are obvious — and are more than financial. And the banks involved have not come through this unscathed. Investors are questioning the level of due diligence that was conducted. Given that licensing had been identified as a potential risk in the prospectus, did bankers keep this sufficiently in mind? If they did, why was the problem not disclosed earlier? If they did not, why not?
Investors are familiar with the idea of caveat emptor. Bankers might do well to bear in mind that there are times where caveat venditor is just as important.