Nanofilm's small public tranche 'a hedge against uncertainty'

Singapore

RETAIL investors are being squeezed out of Nanofilm Technologies International's initial public offering (IPO) by institutional and private capital.

Market observers said that the small public offer is warranted, given the lack of local benchmarks to gauge the success of the IPO.

Nanofilm is offering 77.2 million shares at S$2.59 each for placement in its IPO. The shares comprise around 73.4 million placement shares and 3.9 million public offer shares, representing approximately 11.7 per cent of Nanofilm's enlarged post-IPO share capital of 658.4 million shares.

With the public tranche accounting for just 2 per cent of the S$470.1 million to be raised, retail investors who are keen to put their money down may be left disappointed.

To be sure, a limited public offer is common. TSMP Law Corporation joint managing partner Stefanie Yuen Thio told The Business Times that a small public offer is "very much market practice these days".

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

"It leaves less to chance and allows the issuer to determine with certainty how successful the IPO will be," she said.

The lack of a local benchmark, on the other hand, is unique to the startup, which specialises in advanced materials and nanoproducts - and is set to be the first tech unicorn on the local bourse.

Said chief executive of Azure Capital Terence Wong: "Tech companies in Singapore are largely in manufacturing, whereas Nanofilm offers very bespoke services."

Without a history of similar tech listings, it is "hard to predict how well-received the IPO would be to retail investors", said Ms Yuen Thio.

Another area of uncertainty for Nanofilm is how it would sit in a market that has long been regarded as a safe haven for investors who are after dividends.

The uniqueness of the Singapore market, which has been "very much focused on dividend type of companies", makes it hard to gauge (retail) investor confidence, said Mr Wong.

Priority was therefore put into "beefing up their book" before the IPO, he said.

In addition, more shares tend to be allocated to institutional investors to secure their interest, said Ms Yuen Thio.

Nanofilm's 13 cornerstone investors had agreed to subscribe for some 104.3 million shares amounting to around S$270 million, accounting for more than half the offering.

The cornerstone investors include indirect wholly owned subsidiary of Temasek Holdings, Venezio Investments, Aberdeen Standard Investments (Asia), AIA Investment Management and Lion Global Investors.

Garnering as much support as possible from the start lends credibility to the issuer, said Mr Wong, who pointed out that Nanofilm's strong list of cornerstone investors may have contributed to the heightened interest among retail investors.

The IPO being priced at around 46 times' earnings, based on its fully diluted, adjusted earnings per share of 5.57 Singapore cents for FY2019, is higher than what the market is used to. Still, the novelty of the listing is expected to spark interest.

CGS-CIMB research head Lim Siew Khee said that a huge demand is possible, given that the listing is "something new in the Singapore market".

This way, even if investors fail to secure a spot in the IPO, it may not be too late to buy the stock when it lists.

"If the IPO is heavily oversubscribed and the price is thus well supported, I'm sure there's money to be made," said Ms Yuen Thio.

"That may be better than a less-enthusiastic reception at IPO, which may lead to a more humdrum post-IPO performance," she added.