Two funds cash in $359 million by selling Mando shares

Existing shareholders continue to take advantage of strong share price gains with two more block trades of size in Asia over the past couple of days and bankers say we could see another few deals in the next two weeks. The timing is probably not coincidental. While each seller has its own objectives, it is likely that they feel at least some pressure to get these deals out before an expected rush of initial public offerings in September.

Mando Corp appears to be a case in point. Two of the company’s pre-IPO financial investors yesterday approached the market to try and sell their remaining shares – only one day after their original lock-up expired. The deal, which represented an 18.6% stake in the Korean auto parts manufacturer, was said to have seen good demand from both domestic and international investors despite a sizeable decline in European stock markets during the bookbuilding and the sellers were able to cash in a combined W420.8 billion ($359 million).

A day earlier (after the market closed on Wednesday) three shareholders of Singapore-listed Tiger Airways Holdings chose to try and cash in part of their holdings even though the share price had been on a declining trend in the wake of the first quarter earnings release in early August. The initial block offered to the market was only about $45 million, but with the deal fully covered in just 20 minutes the sellers decided to add more shares and they ended up raising a combined S$125 million ($92 million).

The Tiger deal in particular shows that investors have a lot of appetite for companies with good growth potential. In this case, confidence had started to return and the share price had stabilised after the management arranged a conference call to address the paper loss that spooked the market at the earnings announcement, and as a result, the chance to buy the stock at around 15% below the recent highs proved a great convincer.

The low cost airline went public in January this year and when the block trade was launched on Wednesday, the share price was up 32% from the IPO price, well above the 2% gain the Singapore Straits Times index in the same period.

Mando listed even later than that, in mid-May, but has seen its share price gain 56% since the debut. The stock has sharply outperformed both its closest comparable, Hyundai Mobis, which is up 16% in the same period, and Korea’s benchmark Kospi index, which has added a mere 8.3%.

As was evident already in the IPO, investors like Mando’s strong market position and record orders in both 2008 and 2009 which has led to strong first half earnings. All the 10 analysts who cover the stock according to Bloomberg Data have a “buy” recommendation on it.

However, the Korean company was less lucky than Tiger with regard to the timing of the sale as European markets fell sharply yesterday on the back of disappointing unemployment and manufacturing data in the US. In the UK the FTSE 100 closed 1.7% lower and in Paris the CAC-40 lost 2.1%.  In combination with the fact that Mando’s own share price rose 3.2% yesterday, it was perhaps not too surprising that the placement price was fixed at the mid-point of the indicated range. However, sources said the deal was well covered across the range.

The transaction comprised approximately 3.38 million shares, which equalled about 7.5 days worth of trading based on the daily turnover since listing, or 23 days if based on the past 30 days. They were offered in a range between W122,000 and W127,000, which translated into a discount of 2.3% to 6.2% versus yesterday’s closing price of W130,000. The final price of W124,500 resulted in a discount of 4.2%.

The sellers were H&Q and KDB Private Equity, which held about 6% and 13% of the company respectively. Neither of them will hold any shares after this transaction.

According to a source, the deal attracted about 70 buyers with the demand skewed towards long-only investors. However, with the domestic accounts being almost entirely long-only funds, that wasn’t too surprising. The order book was open less than four hours and closed as advertised at 8.30pm Hong Kong time. This meant the bookrunners avoided dealing with any fall-out in the US market from the negative economic data, but also meant that most of the orders came from Asia-based investors. As a Reg-S deal, the offering wasn’t open to on-shore US accounts.

The Mando block was arranged by Citi, Macquarie and Morgan Stanley.

The Tiger transaction, meanwhile, initially comprised 32.796 million shares, but was quickly increased to 65.796 million shares, which represented a 12.3% stake in the company or about 15 days worth of trading. The shares were offered in a range between S$1.85 and S$1.90, which equalled a discount of 4% to 6.6% versus Wednesday’s close of S$1.98.

Even with the deal more than doubling in size, the demand was strong enough that the bookrunners were able to fix the price at the top of the range for a 4% discount – the tightest discount on a Singapore block trade since 2008. According to a source, the deal was more than two times covered at the final size.

The sellers were Indigo Singapore Partners, a private equity fund specialising mainly in the transportation industry; Ryanasia, which is the private investment vehicle of the Ryan family who is the founder of European low-cost carrier Ryanair; and Tony Davis, the president and CEO of Tiger Airways.

Indigo and Ryanasia are both founding shareholders of Tiger (together with Temasek and Singapore Airlines) but investors were seemingly not that concerned about them selling – even though the transaction came following a peak in the share price and on the heels of media reports in Singapore saying Tiger has had to cancel flights recently following pilot resignations. A key reason for the investors’ relaxed approach, sources said, would have been that Indigo is a private equity investor that was always expected to cash in (the fund also sold a small stake as part of the IPO), while Ryanasia is primarily a financial investor that isn’t involved in the operations of the company.

Indigo and Ryanasia, which held 14.6% and 10.9% of the airline respectively prior to this selldown, will continue to own “sizeable stakes”. Tony Davis held a smaller 1.5% stake before this deal and will continue to own a portion of the company, according to sources. Ryanasia and Davis will have a 90-day lockup on their remaining shares.

Investors also likely welcomed the increase in the free-float to 38.3% from 32.2% as a result of this deal.

Citi and Morgan Stanley were joint bookrunners for the Tiger deal as well. Both banks also lead the IPO in January.