Tiger IPO Shines Amid the Gloom
Tiger IPO shines amid the gloom
By Kevin Brown in Singapore
Published: January 17 2010 22:34 | Last updated: January 17 2010 22:34
Tiger Airways, the Singapore low-cost carrier, will on Monday announce that it has raised S$248m ($178m) in the first initial public offering by an Asian airline for five years, defying industry gloom and investor concern about its forecasts.
The success of the IPO sets the stage for an increasingly intense battle between Tiger and its two main rivals – Malaysia’s AirAsia and Jetstar, owned by Qantas – for the rapidly growing Australian and south-east Asian budget air travel market of 600m people.
The two airlines sought to disrupt Tiger’s IPO by announcing a deal two weeks ago to cut hundreds of millions of dollars in annual costs through co-operation in areas such as passenger handling and aircraft maintenance.
However, a person with knowledge of the Tiger transaction said the institutional tranche of the IPO had been three-and-a-half times subscribed, with the retail portion, which closes today four times subscribed on Friday night.
The person said strong retail interest had continued over the weekend, with the portion likely to end up eight to 10 times subscribed.
Tiger and its bankers are understood to have set the issue price for the 165m shares on offer at S$1.50 – in the middle of the range of S$1.35-S$1.65 that was indicated to institutional investors.
The person with knowledge of the transaction said there was a “95 per cent chance” that demand for the shares would trigger an over-allotment clause, under which a further 19.8m shares would be sold by RyanAsia, controlled by the founding family of Ireland’s Ryanair budget carrier, which held a 16 per cent stake in Tiger Airways.
The IPO will provide Tiger with S$233m before expenses to help finance the acquisition of up to 51 new Airbus A320 aircraft by 2015, adding to its fleet of 17 aircraft. The airline has bases in Singapore, Melbourne and Adelaide.
About S$15m of the IPO proceeds is attributable to Indigo Partners, the US-based investment company, which had a 24 per cent stake in the carrier.
Tiger’s controlling shareholders, Singapore Airlines and Temasek, the city state’s investment agency, are not selling any shares.
The IPO got off to a shaky start as investors queried the cost of Tiger’s fleet expansion plans and its aggressive revenue forecasts, but bankers say Tony Davis, the airline’s chief executive, was able to persuade critics that the forecasts were credible.
Mr Davis, an experienced airline executive, set up bmibaby, BMI’s low cost carrier, in the UK.
The airline has not commented on market rumours that it was forced to reduce the IPO target before official marketing began, but people close to the transaction say there is “no truth” in the suggestion.
The IPO is the first Asian airline flotation since Air-Asia, headed by the flamboyant Tony Fernandes, was launched in Kuala Lumpur five years ago. It is the first budget airline IPO in Singapore. The Tiger offering is being managed by Morgan Stanley, Citigroup and Singapore’s DBS bank.
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I'm shocked! Is this a sign the market is going to crash, when investors start buying dud stocks thinking they're pots of gold?