Alas, our suggestion yesterday that Wednesday's sell-down in Belle International might be the last equity placement in Asia this year was not correct. There were, in fact, two deals in the market yesterday.
Minmetals Land, the real estate arm of steel and metals importer/exporter China Minmetals Corp, raised HK$955.5 million ($123 million) towards land acquisitions and to fund its property developments and an institutional shareholder cashed in HK$499.8 million ($65 million) from the sale of about 75% of its shares in supermarket operator Wumart Stores.
Both deals saw good demand, although with global equity markets under increasing pressure -- Hong Kong's Hang Seng Index fell 1.2% yesterday and the Shanghai Composite lost 2.3% -- and the end of the year only days away, investors are clearly getting more price sensitive and discounts are widening.
Minmetals, which is a small-cap stock with a market capitalisation of only $850 million, was a good example of this. The company was able to exercise a flagged upsize option in full, but had to fix the price at the bottom of the offering range, resulting in a discount of 13.1% versus the latest market price. The deal was fully-underwritten by BOC International.
Minmetals raised the money through a partial top-up placement that saw the parent company, China Minmetals Corp, first sell 430 million existing shares into the market and then subscribe for 390 million new shares at the same price. Because the number of existing shares sold is greater than the new shares bought, the total size of the placement was slightly larger ($136 million) than the capital raised by the company. As a result of the sale, Minmetals Corp's stake in Minmetals Land will fall to 53.6% from 64.2%.
The seller initially offered 360 million shares with the option to add another 70 million shares into the trade. Meanwhile, the new share purchase was increased by 40 million shares from 350 million shares, it too equal to the maximum flagged on the term sheet. The full placement (430 million shares) accounted for about 19% of the outstanding share capital and 16-17 trading days, based on the average daily turnover in the past month.
The shares were offered to investors at a price between HK$2.45 and HK$2.60, which translated into a 7.8% to 13.1% discount versus Wednesday's closing price of HK$2.82. Minmetals Land was suspended from trading all day yesterday to carry out the placement.
According to a source, it quickly became clear that the price would finish in the lower half of the range, but supposedly there was enough support to price slightly above the low end at HK$2.48 or HK$2.50. However, that may have resulted in some of the top orders being downsized and, in the end, the company decided to price at the very bottom.
At the final size, the deal was said to have been about two times covered with orders from just over 30 investors.
The deal came on the back of a non-deal roadshow in China, Hong Kong and Singapore which left investors with the impression that Minmetals Land will continue to make more acquisitions, thus leaving the door open for further growth. The share price has surged 490% this year already.
Meanwhile, an institutional investor under the name of Pure Heart China sold 42 million shares in Wumart at a price of HK$11.90 per share after the Hong Kong market closed. They were initially offered in a range between HK$11.78 and HK$12.23, which translated into a 4% to 7.5% discount versus yesterday's close. The final discount was 6.5%.
The placement, which was arranged by Morgan Stanley, accounted for about 8% of the share capital. The seller will still hold 13.4 million shares, or about 2.6% of the company. The remaining stake will be locked up for 90 days.
More than 20 investors bought into the deal and demand was said to have been heavily weighted towards long-only investors. Hedge funds were still present in numbers, but were putting in smaller-than-usual orders. Demand was also said to have been strong out of Europe.
