© nomura international plc financing real estate through ipo valuation and pricing main market /...
TRANSCRIPT
© Nomura International plc
Financing real estate through IPOValuation and pricing Main Market / GDRs
Michael Boardman
Managing Director Equity Capital MarketsNomura International
Investment Banking
18 February 2008
Page 2
Good deal announced – bad deal delivered?
The IPO of Vneshtorgbank (VTB) last week showed the wall of demand that is flooding into Russian IPOs despite a massive level of supply. Even bankers last week were surprised at the success of the issue, which raised US$8bn.
12 May 2007
Source: Factset
Source: Factset
Corporates should not focus on maximum IPO valuation only – long-term valuation is key
A deal that had looked strong with a price-insensitive book that was multiple-times covered, ended up with an 8.6% one-day loss [...].
5 May 2007
The book was full of quality names, and it became apparent that there was demand at a price above the range.
5 May 2007
VTB GDR price
AFI Development GDR price
reba
sed
to
10
0
Jun 2007 Aug 2007 Oct 2007 Dec 2007 Feb 2008
70
80
90
100
110
120
130
140
Russia RTS VTB Bank
reba
sed
to
10
0
May 2007 Jul 2007 Sep 2007 Nov 2007 Jan 2008
55
60
65
70
75
80
85
90
95
100
AFI Development PLC MSCI Europe / Real Estate -IG
Page 3
Struggling deals outperform the markets?
The IPO of PIK Group was always going to be a challenge, coming in the wake of AFI Development's IPO and its over 20% fall since then. [...] The main drag on the story is the continuing poor performance of AFI Development following its IPO and the presence of the two bookrunners of that deal, Deutsche Bank and Morgan Stanley, alongside Nomura in this case. The challenge is for the sales teams at those banks that sold AFI to convince investors they should now trust them on PIK.
19 May 2007
Russian discount retailer Dixy Retail was still struggling to market last Friday as investors sought a significant discount to its peers for the local listing [...] The move from the original price range was dramatic, with the top of the new range being a 4% discount to the bottom of the original one.
19 May 2007
Russia will have more “unsuccessful“ initial public offerings after OAO Dixy Group and PIK Group sold shares at lower prices [...]
06 June 2007
PIK GDR price
Dixy share price
Jun 2007 Aug 2007 Oct 2007 Dec 2007 Feb 200860
70
80
90
100
110
120
MSCI Europe / Real Estate -IG PIK Group
Jun 2007 Aug 2007 Oct 2007 Dec 2007 Feb 2008
60
70
80
90
100
110
Dixy Group MSCI Europe / Retailing -IG
reba
sed
to
10
0re
base
d t
o 1
00
Source: Factset
Source: Factset
Page 4
Current market conditions remain challenging...
Source: Dealogic, Company press releases
European RE indices performance – last twelve months
RE equity issuance in Europe – 2004 to date
Feb 07 Mar 07 Apr 07 May 07 Jun 07 Jul 07 Aug 07 Sep 07 Oct 07 Nov 07 Dec 07 Jan 0860
80
100
120
FTSE All Cap Emerging Europe / Real Estate - SEC MSCI Europe / Real Estate -IGMSCI Europe
US subprime crisis which started in July 2007 resulted in continued large writedowns for major global banks
Turbulence in global markets sparked fears of a possible downturn in the global economy which continued into 2008 and led to emergency interest rate cuts by the US to try to prevent global recession
Selected postponed / cancelled offerings
Name Approx. deal size
Deal type Industry Nationality Date cancelled/ postponed
Nitol Solar US$300m IPO Utilities Russia Feb 2008
UCP Chemicals n/a IPO Chemicals Russia Jan 2008
Zhaikmunai US$736m IPO Oil & Gas Kazakhstan Dec 2007
Teorema Holding US$500m IPO Real Estate Russia Dec 2007
RCS&RDS EUR500M IPO Media Romania Nov 2007
ZM Herman PLN 13.5m IPO Food Poland Nov 2007
Reinhold Polska PLN 30m IPO Real Estate Poland Nov 2007
Russian Timber Group GBP125m IPO Forestry Russia Nov 2007
New Russian Generation US$550m IPO Energy Fund Russia Nov 2007
Pol-Mot Warfama n/a IPO Machinery Poland Nov 2007
Ferrexpo GBP100m Block Trade Mining Ukraine Oct 2007
CTP Property n/a IPO Real Estate Czech Oct 2007
Vysochaishy n/a IPO Gold Russia Sep 2007
Rusal US$7.5bn IPO Aluminium Russia Sep 2007
Reso-Garantia n/a IPO Insurance Russia June 2007
76%
24%
4.6
H1 2007
H2 2007
0.2 0.5
2.4
4.63.2
9.3
20.8
18.9
0
5
10
15
20
25
2004 2005 2006 2007
EU
R'b
n
CEE RE W. Europe RE
Last 6 months
68%
32%
18.9
Page 5Source: Dealogic
Source: Factset Source: Dealogic
...and European EM new issue market remains at historical highsRussian markets have been less affected by recent market volatility...
Russian markets remain open for good quality stories
...however Russian markets are still viewed as attractive
0
10
20
30
40
50
60
2000 2001 2002 2003 2004 2005 2006 2007
US
$bn
0
50
100
150
200
250
300
Nu
mb
er
Size Number
Despite recent market
turbulence, 2007 was a record year
for European EM new issues
US$1.93bn IPO
Jun ‘07
US$300m IPO
Dec ‘07
US$365m IPO
Nov ‘07
US$274m IPO
Nov ‘07
US$955m IPO
Nov ‘07
US$952m IPO
May ‘07
US$772m IPO
Nov ‘07
US$783m IPO
Nov ‘07
Jul 2007 Sep 2007 Nov 2007 Jan 2008
85.
90.
95.
100.
105.
110.
115.
120.
125.
MSCI Europe MSCI EM Eastern Europe Russia RTS
+17%
“As the Russian market has grown, the deal pipeline has become more crowded, with some companies struggling to gain attention against other deals in the market at the same time. [...]”
“As the Russian market has grown, the deal pipeline has become more crowded, with some companies struggling to gain attention against other deals in the market at the same time. [...]”
The Russian and CIS markets are still perceived as an attractive investment opportunity by investors
Robust growth, sustained demand / supply imbalances and controlled inflation will remain key themes for 2008
Page 6
Determining the intrinsic value of a company
The main complexity of company valuation is to find a suitable valuation range, which reflects all aspects of company value
Intrinsic value
Management team
Historical financial
performanceQuality of assets
Macro environment and
appeal of the market
Competition and barriers to entry
Corporate governance
Growth story
Page 7
Final valuation = intrinsic value + market view
Intrinsic value
Company valuation
at IPO
Overall market conditions
Management performance on
roadshow
Valuation of comparable companies
Competing offerings
=
Specific company appeal
Company value is not only what you think your company is worth
Level and quality of demand
Page 8
Fundamental valuation vs. Market view
Sector specific multiples P / NAV P / FFO(1)
EPS(2)
Dividend yield
Discounted Cash Flow (“DCF”) Method
Net Asset Value (“NAV”) of Projects(Third party appraiser)
Market based valuation Fundamental valuation
Generally, investors have used P/NAV to value emerging market RE companies, which have irregular earnings
As RE companies begin generating regular cashflows the valuation metrics will shift to focus on EV/EBITDA, P/FFO, EPS and Dividend yield
If the fundamental valuation of the company is too far from the market valuation of the company, this needs to be carefully communicated and explained to investors
Source: EPRA (European Public Real Estate Association)
Notes: (1) FFO (Free Funds from Operations (2) EPS (excluding revaluation gains)
Earnings multiples EV / Sales EV / EBITDA P / E
Page 9
How does the pricing process work?
Pre-marketing feedback
Research analysts’ valuation
Used as guidance for investors when submitting their orders
Can be set either when the
Preliminary Prospectus is published;
or during the roadshow
Setting a price range
Normally the bookbuilding period is concurrent with the roadshow
Summary of investor orders with indications of size of the order maximum price
In case of multiple bookrunners, all orders are compiled into one book
If investor demand is greater than the deal, it is “oversubscribed”
Healthy oversubscription level is at least 3x
Book of demand
Final pricing
Research analysts
Sales team
Ensure some discount to fully distributed value is granted to compensate for lack of liquidity / primary market risk
Page 10
Setting a price range
approx. 20% price range
Middle of the price range Indicative valuation based on the
fundamental valuation of the company and pre-marketing feedback
Bottom of the price range Anchor price
Sufficient safety margin for unexpected market movements
Attractive to the majority of investors
Top of the price range Pricing target
Sufficient uproom not to underprice too much in case of strong markets and soaring demand
Price range considerations
Width of the price range
Time of the price range announcement
Roadshow schedule
Revising the price range?
0%
+10%
-10%
Page 11
Key IPO structuring issues to increase the valuation
Raising capital rather than selling-off in the IPO
Introducing investor(s) in a pre-IPO phase
Generating market awareness of the stock at an early stage
Improving corporate governance before accessing international markets
Examples
Page 12
Do’s and dont’s in a pricing / valuation context
Assume market view can be easily pushed Leave money on the table
Dont’sDo’s
Be at a mercy of one bookrunner Listen to the market
Put highest price on the basis of oversubscription only
Get a third party adviser
Go for price at costs of investor quality Target as wide as possible investor universe –
geographically and by type
Page 13
Disclaimer
This presentation has been prepared by, and is subject to the copyright of, Nomura International plc (“Nomura”). No part of this presentation may be reproduced, transmitted, stored in a retrieval system or translated in any other language in any form, by any means without the prior written consent of Nomura.
This presentation is confidential and has been furnished to the intended recipient solely for such recipient’s information and private use and may not be referred to, disclosed, reproduced or redistributed, in whole or in part, to any other person.
This presentation has been prepared on the basis of information provided to Nomura and publicly available information. This information has not been independently verified by Nomura. This presentation does not constitute a due diligence review and should not be construed as such. No representation or warranty as to this presentation’s accuracy, completeness or correctness is made and no reliance should be placed on the accuracy, completeness or correctness thereof. The information contained, and any opinions expressed, in this presentation are subject to change at any time and Nomura is under no obligation to inform the intended recipient or any other person of any such change.
Nomura accepts no responsibility or liability whatsoever in relation to this presentation (including for any error contained in this presentation or in relation to the accuracy, completeness or correctness of this presentation or in relation to any projections, analyses, assumptions and/or opinions contained herein nor for any loss of profit or damages or any liability to a third party whatsoever arising from the use of this presentation). The exclusion of liability provided herein shall protect Nomura, its officers, employees, agents, representatives and/or associates in all circumstances.
This presentation is not intended to form the basis of any investment decision and does not constitute or form part of any offer to sell or an invitation to subscribe for, hold or purchase any securities or any other investment, and neither this presentation nor anything contained herein shall form the basis of or be relied on in connection with any contract or commitment whatsoever. This presentation is not, and should not be treated or relied upon as investment research or a research recommendation under applicable regulatory rules.
Nomura International plc is authorised and regulated by the Financial Services Authority and is a member of the London Stock Exchange.