The initial offer of 57.7 million shares was well covered to allow sole bookrunner Cazenove to exercise the upsize option in full and increase the total deal size by 11% to 64.17 million shares, says a source close to the deal. But the size increase came at a price as the company had to accept a 14.2% discount, which is steep for any transaction and in particular for a deal that doesnÆt even hit the $50 million mark.
In relative terms, the placement wasnÆt that small, however, representing 20% of the companyÆs existing H-share capital and 8.9% of the A- and H-share capital combined.
One observer commented that investors were being asked to ôtake a bit of a puntö, and therefore the high discount was justified: not only is the stock highly illiquid û the deal represents 40 days of average trading û but it is also extremely volatile and regularly sees daily changes of 3% to 4%. Zhejiang GlassÆs share price took a heavy hit in March, but in recent weeks has rebounded to around HK$7.80 where it traded at the beginning of the year, making it an outperformer versus the broader market.
Also, this was only the fifth follow-on share sale in Asia this year (and the second by an H-share company) and while it priced at the bottom, the company did manage to sell the maximum amount of shares. Zhejiang Glass manufactures glass used in the construction and automobile industries, and was in the need of funds for capital expenditure. The company would have welcomed the additional money raised through the upsize option.
The shares were offered at a wide discount range of 7.8% to 14.2% versus WednesdayÆs closing price of HK$7.05. The final price was set at HK$6.05, or the lowest end of the indicated range of HK$6.05 to HK$6.50, giving the full discount.
According to the source, the deal could have been priced higher, but the bookrunner wanted to keep everyone in. Along with new investors, a number of pre-existing shareholders participated in the deal. There was a 50-50 split between Asian investors and those from the US and Europe.
The deal was launched at around 10am Hong Kong time yesterday after the stock was suspended and the books remained open until early evening, long enough for US investors to get involved.
This is not the first time that Zhejiang Glass has issued new shares in a placement. In June 2006, it sold 142 million new H-shares, raising HK$256 million which was used to pay off short-term debt. Among the investors who bought into that deal were the International Finance Corporation, which is the private sector arm of the World Bank, and investment fund Scion.
Of the money raised from last nightÆs share sale, 90% of it will be used for capital expenditure, while the rest will go towards working capital. In its 2007 financial report, the company said that it had capital commitments totalling Rmb3.6 billion ($518 million), of which Rmb1.2 billion is tied up in a soda ash production line in Qinghai, and the remaining Rmb2.4 billion invested in making new glass production lines in Zhejiang.
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