Malaysia-headquartered private equity firm Creador is gearing up to sell 40% of its stake in CTOS Digital as the credit reporting agency looks to tap the Main Market of Bursa Malaysia to launch its IPO.
“Malaysia is one of the best markets to take companies public because there is a lot of trapped liquidity in the country today,” Creador founder and chief executive officer Brahmal Vasudevan tells DealStreetAsia in an interview. “There’s a lot of extra capital stuck in Malaysia that essentially causes the market to look for growth stocks.”
Vasudevan believes that the lack of growth stocks and substantial fintech companies on the stock exchange could boost investor interest in the CTOS issue.
The PE player currently holds an 80% stake in CTOS that it had acquired in two tranches – 70% for 215 million ringgit in September 2014, and later another 10% at about 45 million ringgit.
If the proposed IPO goes through, Creador could gain about five times on its investment in CTOS, DealStreetAsia understood.
CTOS’ IPO has yet to be priced. According to its draft prospectus filed with the Securities Commission Malaysia, it will offer up to 1.1 billion shares on the Main Market, comprising an offer for sale of up to 900 million existing shares and a public issue of 200 million new shares. Bloomberg reported in August 2020 that CTOS plans raise as much as $150 million in an IPO.
Maybank Investment Bank and RHB Investment Bank are the joint principal advisers for the group’s IPO.
CTOS is engaged in the business of credit reporting, digital software-related services, business information reporting, data analytics services, development of local and global financial information system, consulting services, debt collection service and database management, among others.
“We feel that Malaysia is dying for an asset like this (CTOS) since there are no large fintech companies. There is a shortage of exciting growth stories like this. We think that interest levels are actually extremely high,” says Vasudevan.
While CTOS plans to use a part of the proposed IPO proceeds to repay its bank borrowings, a part of it will be earmarked as listing fees. The company also plans to use the capital to facilitate its acquisition plans.
“One of our future plans is to selectively pursue acquisitions and investments in companies as part of our growth strategy,” it said in its draft prospectus. The company is scouting for assets that have direct cost and capability synergies with its digital solutions, that enables it to “expand our digital solutions offering, achieve value chain integration for our existing segments and customers, and facilitate entry into new verticals,” it added in its draft prospectus.
CTOS posted a net profit of 37.97 million ringgit in 2020, down from 39.01 million ringgit in 2019. However, its revenue grew 8.8% to 140.50 million ringgit in 2020 from 129.14 million ringgit a year ago. Meanwhile, its borrowings stood at 163.5 million ringgit.
CTOS’ listing comes after Creador scored a partial exit in October last year from its retail portfolio company Mr D.I.Y. Group. It raised RM1.5 billion ($370 million) in Malaysia’s biggest IPO in the last three years.
“Mr D.I.Y was attractive because it was a high growth stock in a market…there are very few growth stocks in Malaysia.”
Analysts concur with Vasudevan’s bullish view that there could be a strong interest for IPO in the stock exchange in Malaysia.
“I think liquidity will be there, given the prevailing low-interest rate environment and also the relatively strong trading liquidity over the past couple of months,” says Malacca Securities senior analyst Kenneth Leong.
Echoing the same sentiment, a buy-side analyst on condition of anonymity says: “The market is always looking for new ideas and is hungry for IPO issuances.”
On Thursday, Malaysia’s central bank maintained the overnight policy rate (OPR) at 1.75%, in a bid to help support the economy’s recovery as coronavirus cases rise. As reported earlier, all 13 economists polled by Reuters saw Bank Negara Malaysia keeping its key interest rate at the historic low.
Home market bias
“As a Malaysian and as a Malaysian fund, we are very keen to promote the development of the capital market in Malaysia,” says Vasudevan.
The company could have adopted the M&A route, too, that would have paved the exit for Creador. Or it could have even tapped the international market for a public listing.
“We could have sold this company to an international firm or we could have taken it public on the New York Stock Exchange. We were offered the chance to do that, but we chose Malaysia because one is we think it’s an excellent capital market, which rewards high growth stocks. Because we are largely based in Malaysia and we want to promote the stock exchange in the financial markets,” added Vasudevan.
The Edge Malaysia reported in August last year that Creador was considering listing CTOS on either Bursa Malaysia or Nasdaq.
Last year, the stock exchange in Malaysia saw 19 new listings as compared to 30 listings in 2019. The new listings raised a total of 2.0 billion ringgit as compared to 2 billion ringgit a year ago.
Although the total number of listings had declined in 2020, the IPOs collectively contributed a total of 12.1 billion ringgit to the market capitalisation representing an increase of 51.0% from 8.0 billion ringgit in 2019, Bursa Malaysia’s annual report showed.
While there were fewer listings, the average size of each listing was significantly larger than in the previous year. Case in point: Mr D.I.Y. Group’s IPO.