Forum: Nanofilm should increase new share issue

Finally, Singapore is going to have what has been described as the biggest non-real estate investment trust initial public offering (IPO) in years with the proposed mainboard listing of home-grown Nanofilm Technologies (Nanofilm IPO shares priced at $2.59; Temasek to take substantial stake, Oct 24).

Nanofilm is a commercial spin-off from Nanyang Technological University, and is a validation of academic research and commercial application leading to fruitful enterprise.

Nanofilm is primarily a coating solutions provider in the advanced material space. The Singapore Government has been investing heavily to support advanced material research and development (R&D) as a critical enabling technology. Based on Nanofilm's IPO prospectus, the company has enjoyed high growth with impressive net margin.

Nanofilm is raising $470 million by offering 181.5 million shares priced at $2.59 apiece, valuing it at $1.7 billion. It has secured 104.3 million shares subscription from 13 cornerstone investors, including Temasek, and the remaining will be sold through international placement and public offering in Singapore.

However, only about $191 million or 41 per cent of the net proceeds will go to the company. In other words, approximately $279 million will go to the founders and promoters of the company. The IPO proceeds will be used mainly for acquiring new machinery and facilities, and spending on R&D, and engineering.

Given its enviable sales growth and profitability track record in a high-growth sector for years to come, Nanofilm should be spending more on mergers and acquisitions, expanding markets and customer bases, and more R&D to stay ahead of the brutal competition in this space.

Thus, raising substantial funds should be its prerogative.

If there is such high demand for the shares, why does the company not increase new share issue instead of the founders selling their shares? The founders can always sell their shares post-IPO in the secondary market after the moratorium is lifted. This is also proof of strong confidence in the company they founded, and will align their interests with that of IPO investors.

Having more new shares would allow more participation in Nanofilm's success story by international and Singapore investors.

With a limited pool of only 3.9 million shares for public offer, Singapore investors would be hard-pressed to get a piece of this stock, unless they are willing to pay a higher price in the secondary market.

Ee Teck Siew

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