SINGAPORE (June 19): The Southeast Asian initial public offering (IPO) market got off to a good start in the first quarter of this year. There were 31 deals, up 63% y-o-y, and with a total of US$3 billion ($4.2 billion) raised, a whopping 885% increase from 1Q2019. Singapore accounted for five listings, with a total of US$0.5 billion raised.
However, the Covid-19 outbreak has brought the IPO momentum to a halt — until now. Along with the partial recovery of the financial markets, Pahang-based, iron-ore producer Southern Alliance Mining (SAM) is first off the gates. It lodged its prospectus on June 16 and is looking to raise gross proceeds of $19 million with an all-placement offer of 76 million shares at 25 cents each, which is around 6.13 times FY2019 audited profit before tax.
“Although the overall economic sentiment has dampened, the market outlook for our iron ore business is not that gloomy,” Teh Teck Tee, non-executive, non-independent chairman of SAM, tells The Edge Singapore.
The listing preparations, well underway before the outbreak, were able to move along despite restrictions. “It’s encouraging that the book-building and registration process has gone well, despite the weakened sentiment and the ‘circuit breaker’ and movement control order imposed in Singapore and Malaysia respectively,” notes Pek Kok Sam, CEO and executive director of SAM, who is selling 20 million vendor shares as part of the IPO.
Upon completion of the listing, the Catalist-bound company’s share base will increase by 15.5% to 489 million shares. The IPO price of 25 cents per share gives the company a market value of $122.3 million. The IPO, managed by PrimePartners Corporate Finance, closes at noon on June 24, and trading is slated to commence at 9am on June 26.
Putting downturn behind
Teh and Pek’s expertise in mining dates back to a decade ago. Pek was the founder of Honest Sam Development, a mining subcontractor which is now 60% held by SAM. Teh was a managing director of a logistics company.
The duo founded Aras Kuasa in 2004 to meld their respective interests and specialities in mining. The company has undergone a restructuring exercise and has been named Southern Alliance Mining since April 27.
As Pek explains, SAM, which specialises in the production of high-grade iron ores, steel products and pipe coating materials for oil & gas operations, commands a “unique market position”. It has a well-oiled logistics infrastructure in place and has built up long-standing ties with customers in both Malaysia and China.
For its 1Q2020 ended March, SAM posted a revenue of RM79.6 million ($25.9 million), with a net profit after tax (NPAT) of RM23.9 million. For the full-year 2019, it reported earnings of RM88.2 million, reversing from losses of RM17.2 million in FY2018.
Revenue nearly doubled between FY2018 and FY2019 to RM189.1 million, thanks to a higher volume of ore sold at higher prices.
To be sure, FY2019 was the year the market got out of the slump that hit iron ore prices between 2014 and 2018. The downturn was the “most challenging period” for SAM, mulls Pek. Putting it down to experience, he believes the company has now “established a resilient and solid operational footing”.
As Malaysia’s economy gradually reopens, Pek and Teh are betting that the long-term growth trend in steel consumption will continue. The Malaysian Iron and Steel Industry Federation estimates demand at 12.4 million tonnes in 2025, up from 9.4 million tonnes in 2017. As governments revive infrastructure projects, further improvement is seen.
Similarly, China’s demand for steel, to be used in building railways, bridges and the likes, is seen to remain resilient. The World Steel Association notes that all major steel-using sectors there were back to full productivity by the end of April. Demand is seen from other parts of Southeast Asia too, coming from water, power, transportation and other urbanisation projects, says Teh.
Just this past week, iron ore futures hit a 10-month-high. The iron ore metric on China’s Dalian Commodity Exchange was up 1% to close at RMB781 ($110.37) a tonne on June 16, while the Singapore Exchange’s (SGX) benchmark contract gained 2.3% to $102.79.
Expansion and exploration
To meet growing demand, SAM plans to invest the bulk of the $11.9 million from the IPO’s net proceeds in mining equipment and infrastructure, as well as for possible acquisitions and other business development activities.
Since 2008, SAM has been producing from the Chaah Mine in Johor, which has an estimated reserve of 6.1 million tonnes of iron ore worth US$88 million at current market prices. The company plans to undertake further exploration activities to ascertain if there is a bigger pool of reserves that can be exploited.
In addition to Chaah, it has in the pipeline exploration and mining rights for three other sites in Malaysia: Mao’kil, Chaah Bahru and Kota Tinggi. “We hope these will yield favourable results for us to meet market demand and drive our future growth,” says Teh.
Listing on the SGX is another way by which SAM wants to grow. Teh believes the company can benefit from Singapore’s standing as a commodities trading hub, with a vibrant community of iron-ore producers, large steel mills and shipping companies. The city-state’s iron ore futures and the traction of the annual Singapore Iron Ore Week complement SAM’s growth strategy, he adds.
Assisted in graft probes
Meanwhile, SAM’s preliminary offer document revealed that Pek, along with his sister Siew Mei, had assisted in graft probes by the Malaysian Anti-Corruption Commission (MACC) between 2009 and 2014. They were also subpoenaed as witnesses in the trials against four Malaysian civil servants charged with corruption and allegedly accepting and/or soliciting bribes from Aras Kuasa — SAM’s predecessor — prior to its restructuring exercise.
The Edge Singapore understands that among the accused persons are land officers who had allegedly accepted bribes from the company, as an inducement to not take actions against it for violating permit regulations on the extraction of stone materials.
The offer document asserts that “Aras Kuasa, Pek and Siew Mei were not the subject of the investigation or the subsequent criminal charges”. It adds that the four civil servants charged were subsequently acquitted. MACC has also provided written confirmation that Pek, Teh and other related individuals are found to have no record of corruption offences.
