While deal activity in the Hong Kong market took a breather yesterday following a more than 200-point drop in the Hang Seng Index for a second straight day, investors elsewhere in Asia stepped forward to take advantage of higher share prices.
In Indonesia, the controlling shareholder of Indika Energy raised Rp1.913 trillion ($212 million) from the sale of a 10% stake in the company and, in Malaysia, government investment company Khazanah Nasional sold a 6% stake in Malaysia Airports as it continued its effort to reduce the state-ownership of listed companies. The latter sale totalled M$396 million ($128 million).
A third sell-down of size took place in South Korea where Korea Development Bank raised W288.12 billion ($258 million) through the sale of a 10% stake in shipping company STX Pan Ocean. However, according to sources, this deal took the form almost of an agency deal and was completed partly through the sales trading desks at the bookrunning banks.
The shares were offered at a fixed price of W14,000 each which was equal to yesterday’s closing price, but beyond that, there was little information about the deal or about who bought it. Despite the absence of a discount, one source said there was a lot of interest immediately the books opened, but wasn’t able to elaborate.
Daewoo, Deutsche Bank, Royal Bank of Scotland and Samsung Securities ran the trade.
Of the other two deals, the Indika transaction attracted the most interest and the deal was upsized by 41% to 520.7 million shares from 370 million at launch. The deal didn’t include an upsize option from the beginning, but strong demand, primarily from long-only institutions, prompted the seller to increase the size anyway.
Even at the larger size, the bookrunners – Citi and J.P. Morgan -- were still able to fix the price above the mid-point at Rp3,675 per share for a 5.7% discount versus yesterday’s close. The shares were offered in a range between Rp3,600 and 3,725, which translated into a discount of 4.5% to 7.7%.
Close to 50 investors came into the deal, which was multiple times covered. Most of the buyers were Asian, but with some participation from Europe. Offshore US investors didn’t show much interest.
One reason for the strong demand for the coal producer may be that this sale will increase the free-float to about 37% from 27% previously and hence help boost liquidity in the stock. The trading volumes are currenlty thin as evidenced by the fact that last night’s transaction accounted for more than 25 days of trading. The free-float will now be above the minimum threshold for a potential inclusion in the MSCI Indonesia index and observers say if this was to become a reality, it could lead to significant buying by index funds and other asset managers benchmarking themselves against the MSCI Asian indices.
The rest of the company is owned by the founding family, whose holdings will drop to 63% following this transaction. This was the first time the family sold shares since Indika’s initial public offering in May 2008. Its remaining shares will be locked up for six months.
The deal came as Indika’s share price hit a 52-week high and as the Indonesian stockmarket continues to edge higher. The market is the best performer among major Asian stockmarkets this year with a 48% gain.
Malaysia is lagging behind other Southeast Asian markets (Indonesia, Thailand and the Philippines), but analyst are generally positive on the market and some believe it will be playing catch-up to the others in the final months this year. However, the interest in using the Malaysia Airports transaction as a way to increase the exposure to this market was pretty modest, which may have been due to the tight discount.
Khazanah offered the shares at a price between M$6 and M$6.12, which at the bottom end translated into a discount of just 2%. The top end was equal to yesterday’s closing price and hence offered no discount at all. It was not too surprising therefore that the price was fixed at the bottom of the range. The share price also closed at a 52-week high of M$6.20 last Thursday after gaining about 29% since mid-July.
A source said the deal was covered quickly, but the seller did not exercise the upsize option of 22 million shares, which could have increased the deal by as much as 33% from 66 million shares initially. The deal will reduce Khazanah’s stake in Malaysia Airports to about 54% from 60% and should help boost the liquidity in the stock – which is another of the government’s aims with regard to these sell-downs. The turnover in Malaysia Airports is currently less than $2 million per day, meaning the deal accounted for more than 60 days worth of trading.
The illiquid nature of the stock kept hedge funds away from the deal, but the demand from long-only investors was reasonably healthy. The buyers included both existing shareholders and new long-only accounts. Orders were generated primarily out of Malaysia and Asia, but with some new investors coming in from Europe as well.
Investors like the stock partly because of a decent dividend yield of 3.8%, but also because the yield comes with growth potential too. This year, the company is expected to generate 12% revenue growth and analysts expect a similar performance in the coming years.
The deal was arranged by HSBC, Nomura and domestic Malaysian bank RHB Capital.
