The controlling shareholder of Yue Yuen Industrial (Holdings), a contract footwear manufacturer, yesterday took advantage of a recent rally in the company's share price by selling HK$757.5 million ($98 million) worth of shares.
The Tsai family, which controlled 49.98% of Yue Yuen before this transaction, offered 30 million secondary shares, or 1.8% of the company, at a price between HK$25 and HK$25.75 apiece through its investment vehicle, Quicksilver Profits. The price range represented a discount of 4.6% to 7.4% to Tuesday's closing price of HK$27.
After a full day of bookbuilding, the price was, according to a source, fixed at HK$25.25 for a discount of 6.5%. There was no information last night about the size or nature of the demand.
Simultaneously, Yuen Yuen was also in discussions about a $300 million loan and said in a statement to the Hong Kong stock exchange that it plans to issue $300 million worth of American style call warrants. The warrants will be issued at a price of $0.288137 apiece and will have a strike price of US$4.21, according to the same source. The strike price is equal to HK$32.72, which represents a 29.6% premium over the reference price of HK$25.25 (equal to the price on yesterday's placement).
Citi is the sole arranger of the placement, as well as the loan and warrants.
Yue Yuen's Hong Kong-listed shares have soared more than 17% in the past month. Trading of the stock was suspended yesterday to complete the placement which was launched during the Hong Kong morning trading session.
Quicksilver Profits could have taken advantage of a share price rally in January, though those gains turned out to be short-lived. The share price jumped nearly 20% in the first three weeks of this year. The price peaked at HK$26.95 on January 19 when the stock gained 4% after Morgan Stanley raised the footwear maker to "overweight" from "equal-weight" and set a target price of HK$31.30. But it then fell around 10% over the next month before resuming the upward trend.
A recent rally in Hong Kong stocks could encourage more investors to cash in some of their holdings, analysts say. The benchmark Hang Seng Index has gained 8.6% from a February 8 low of 19,550 points to 21,239.35 yesterday.
TPG raised $69.5 million by selling a portion of its existing shareholdings in Lenovo last month, making the most of a 50% jump in the shares of China's largest PC maker over the past six months. TPG sold slightly more than 100 million shares, or 1% of Lenovo's existing share capital, at a tight 0.7% discount to the latest closing price.
The Tsai family sold some of its holdings in Yue Yuen last April. Though a small block at just $48 million, the transaction made investors panic and the share price tumbled 13.3% following the deal. The transaction involved 20 million shares, or 1.2% of the company, at HK$18.65 per share, which represented a 6.75% discount to the market price.
Yue Yuen's chairman, Tsai Chi Neng, said at a press briefing earlier this month that he is "optimistic" about order growth this year for the world's largest supplier of branded athletic and casual shoes.
Orders for Yue Yuen, which supplies Nike and Adidas, are recovering and customers' inventories are "back to healthy, normal levels", Tsai told reporters in Hong Kong after the company's annual general meeting. While he noted that he couldn't say that business is very good now, he added that conditions are improving.
Yue Yuen's retail business has seen margins widen on less discounting, said David Tsai, the company's managing director, at the same event. The company is building a factory in Bangladesh at a cost of $20 million, he said.
Yue Yuen is mainly engaged in the manufacturing and marketing of casual and athletic footwear.
The company said in a statement filed with the Hong Kong stock exchange that its net earnings dropped 0.9% to $464 million for the fiscal year ending September 2009. Turnover declined in the first quarter of fiscal 2010 due to the exceptionally strong order flow in the same period last year. For the three months ended December 2009, the group turnover declined by 3.4% year-on-year to approximately $1.3 billion, it said.
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