HK market pauses but placements keep coming

While the Hong Kong stockmarket took a breather yesterday and closed marginally lower, companies and existing shareholders continued to take advantage of what is generally regarded as an improvement in sentiment for equities with three more deals launched.

The largest was a combined sale of new and existing shares in Franshion Properties (China), which came a couple of weeks after the company beat a number of larger players to win the auction of a coveted commercial property site in Beijing for Rmb4.06 billion ($595 million). According to media reports, the site is referred to by industry insiders as "the only prime land left in Beijing's central business district" and it is therefore not too surprising that it attracted a record price for a Beijing land sale -- even if China's property market is still feeling the effects from last year's credit crunch that led to a slump in prices.

Franshion offered 768.9 million shares in a range between HK$2.52 and HK$2.63, which represented a discount of 4% to 8% versus yesterday's closing price. It was priced at the bottom for the maximum discount and a total deal size of HK$1.94 billion ($250 million). Sixty percent of the total deal was new shares sold by the company, while the rest comprised existing shares that were sold by controlling shareholder Sinochem, which held about 70% before this transaction.

Franshion didn't exercise the upsize option which could have increased the deal by another $50 million, suggesting that the level of demand may not have been sufficient. One source said the deal attracted quite a good following with close to 50 names in the order book, although a large part of the allocation went to a smaller group of names -- many of which were existing shareholders. The deal was arranged by Citi and Deutsche Bank.

Also in the market yesterday were a smaller sell-down of about $110 million in sportswear retailer China Dongxiang through Deutsche Bank and J.P. Morgan, and a HK$654.2 million ($84 million) placement of new and existing shares in Wasion Group Holdings through Macquarie.

According to a source, three companies controlled by Dongxiang's CEO, chairman and the chairman's wife were attempting to sell 170 million worth of shares in the company, which owns the Kappa brand in China. The shares, equal to about 3% of the company, were offered in a range between HK$4.99 and HK$5.02, which translates into a 5.5% to 6% discount versus yesterday's closing price of HK$5.31.

Sources say the deal appeared to have attracted a lot of demand and early this morning one person close to the deal said it had priced at the top end of the range at HK$5.02, resulting in a total deal size of HK$853.4 million ($110 million).

The selldown comes after Dongxiang's share price has gained more than 160% this year.

Wasion Group, which makes electronic power meters, offered 80 million shares of which 62 million were new and the rest existing shares that were sold on behalf of employees who had received them through stock options. The deal also had an upsize option of approximately 13.5 million existing shares (owned by the company and originally bought for a share award plan that has since been terminated), which was exercised in full. This resulted in a total deal size of 93.5 million shares, or 11% of the company.

The shares were marketed in a range between HK$6.50 and HK$7.10, which was equal to a discount of 7.2% to 15% versus the close of HK$7.65 yesterday morning. They were suspended from afternoon trading to complete the sale. The final price was set 10 HK cents off the top at HK$7, which gave a discount of 8.5% and a total deal size of HK$654.5 million (84 million).

One source said demand was strong enough to fix the price at the top, and the fact that it wasn't, was "a token from the management" and an acknowledgement of the rally in the share price, which is up 10-fold since October last year. The stock has gained on the back of steady business growth, stable net profit margins and a joint venture with the State Power Grid to develop smart power grids from 2011.

The company said it will spend about HK$80 million on the acquisition of new production facilities to expand production capacity for various cooperation projects with the state grid. Another HK$200 million will be used for research and development and potential M&As related to its new smart meter technology, while HK$70 million will go towards the development of an electronic meter project and HK$50 million. The rest will be used as general working capital.


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