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SGX loses year's biggest IPO on Greece fears

Manulife Reit shelves listing, blames volatile capital markets; others say offer also not compelling enough for investors

Manulife US Reit, Singapore's only mainboard listing aspirant this year, has postponed its offer indefinitely after meeting weak demand.


MANULIFE US Reit, Singapore's only mainboard listing aspirant this year, has postponed its offer indefinitely after meeting weak demand.

If it had gone through, it would have been the biggest initial public offering (IPO) in almost a year after Accordia Golf Trust's S$759 million share sale last August.

The manager of the real estate investment trust blamed "increased volatility in the equity capital market". "Depending on market conditions, the IPO is expected to proceed at a later date," it told BT.

The Reit manager started taking orders from institutional investors last week. The books for the IPO were scheduled to close last Friday, but demand did not meet company expectations, according to foreign media.

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This happened ahead of Greece's bailout referendum. By Monday, it emerged that the Greeks had overwhelmingly rejected conditions of a rescue package from creditors. The euro slumped and Asian markets fell as a result.

Hugh Young, managing director at Aberdeen Asset Management Asia, said: "Singapore Reits have come a little off the boil, and it's a bit of a nervous time for markets, so we are not totally surprised by this. This is bad luck, rather than a bad issue."

Manulife Reit was seeking to raise S$569 million by selling 694 million units at 82 Singapore cents each. It was offering an estimated 6.3 per cent dividend yield for 2016.

The Reit was backed by three office properties in Washington as well as Los Angeles and Orange County, California. The public offer was supposed to launch on July 7 and close on July 13. DBS and JPMorgan were managing the offer.

The Reit had also secured six cornerstone investors that were to take up units ahead of the IPO. They included sovereign wealth fund Oman Investment Fund, Nikko Asset Management and Malaysia's Fortress Capital Asset Management. Having strong cornerstone investors helps bankers market the deal to other institutional and retail investors.

Alvin Lim, HSBC head of banking advisory, South-east Asia, said that the chances of Greece exiting the eurozone just got higher. If that unfolds, equity and currency markets will inevitably be hit. "Investors are getting worried and they are more risk averse now," he said.

Another banker not related to the deal said that he would not have lodged it last week (June 29) if it were up to him. "I think there is demand, as shown by the cornerstone investors, but if I know Greece is still a question mark, why rush it? I would wait till the referendum is over."

Greece was only part of the story, though. It's not like the Reit is holding Greek resorts, the banker remarked. While sentiment definitely weighed on the market, the offer was also not particularly compelling, fund managers told BT.

At 6.3 per cent, the projected yield is not tempting enough, especially when coupled with the risk of its foreign currency and asset exposure.

In comparison, other office Reits such as Frasers Commercial Trust and Keppel Reit are less risky, yielding about 6.4 per cent and holding mostly Singapore-based assets.

While Manulife Reit provides rare exposure to the US property market, US assets have also not been tried and tested in Singapore's stock market. Valuations could be hurt if the market here regards those assets differently.

Also, most fund managers based here have Asian mandates, and hence have little incentive to buy US assets. Hence, they would need a strong reason to justify buying an off-benchmark, non-mandate stock. But Manulife Reit did not appear attractive enough.

Tim Gibson, co-head of global property equities at Henderson Global Investors, said: "From a valuation perspective, 6.3 per cent 2016 yield for a small/mid-cap Reit offering 2-3 per cent internal growth is not outstanding. The lack of visible external growth prospects without a sponsorship pipeline combined with a degree of currency risk leads us to believe that there are better options in the sector."

Singapore's IPO market has been deathly quiet this year as investors flock north to China's manic bull market instead. Companies have raised a mere S$56 million through IPOs in Singapore this year, and all on the secondary Catalist board.

There are still a number of deals "jammed up" in the IPO pipeline, bankers say. Some are in fairly advanced stages, already submitted to the exchange. A hospitality Reit will start to source for cornerstone investors later this week or next.

Bankers say that these companies would need to get their timing right in deciding when to lodge their prospectuses. But no one appears to be in a hurry. They may even end up delaying their offers should markets go into a tailspin if Greece exits the eurozone.

In that scenario, the stock market may need about 3-6 months to stabilise, said Mr Lim from HSBC, in which case the second half could end up as quiet as the first half, making 2015 the driest year for IPOs yet.

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