Formula One float could wait until market improves

Singapore’s main stock exchange (SGX) approved a $2.5 billion share sale of Formula One racing earlier this week according Dow Jones Newswires which spoke to sources close to the matter.

Morgan Stanley, Goldman Sachs and UBS will lead the initial public offering, which could happen as early as next month and raise between $2 billion and $3 billion. The racing body could face a tough road to capitalization in the face of turbulent international markets.

Formula One, a global auto-racing league, features teams of the best single seat car drivers from around the world who compete for a championship. The sport popular in Singapore, a country is known for its tourism and entertainment industries. Singapore hosts one of the circuit’s popular night races, the Singapore Grand Prix.
The decision prompted a mixture of cynical and skeptical reaction from fans on racing websites and other online comment sections Wednesday.

Singapore’s notoriously open market isn’t a stranger to sports franchises. The SGX approved a similar offering of one of the world’s highest grossing sports franchises, Manchester United, last September. But the English Premier League soccer club delayed the hiring process for an underwriter until very recently, citing a need for the market to return to more favorable conditions.

James Krapfel, an IPO analyst at Morningstar, Inc., warned that Formula One might be forced to take similar action.

Some analysts speculated earlier this week that the sour taste in investors’ mouths after Facebook’s botched IPO would adversely affect Formula One’s offering. Krapfel disagreed with this assessment, saying that overall market conditions would play a larger role in determining Formula One’s decision timeline.

“Equity markets have weakened recently, especially international markets. If that trend continues, I wouldn’t expect them to go public until that feeling abates.”

It’s an increasingly common practice, he said, for high-end companies to list in areas around the world with the highest concentration of customers. He cited luxury goods retailer Prada – whose products have flown off Asian shelves – which listed on the Hong Kong Stock Exchange last year.

Carlos Silva, managing partner at Park Lane, an investment bank with an area of expertise in sports, said it’s not surprising that Formula One chose to list on an international exchange.

“Trading volume and publicity could be lower on the Singapore Exchange, but factors like potential valuation and return, liquidity, flexibility, investment appetite, growth in desired markets and other benefits may outweigh that,” Silva said.

The league’s largest stakeholder, private-equity firm CVC Capital Partners, declined to comment on Formula One’s approved float, but Managing Partner Donald Mackenzie confirmed in a statement on Tuesday that three firms purchased a 21 percent ($1.6 billion) equity stake in the racing body. CVC will continue to be the $1.5 billion sport’s largest shareholder, a company statement said.

According to Bloomberg LP, other stakeholders include the administrators of now-defunct Lehman Brothers, Bambino Holdings Ltd., and Formula One Chief Executive Bernie Ecclestone.

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