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One of Mongolian Mining Corp’s (MMC) biggest shareholders last night raised HK$633.8 million ($82 million) from the sale of a 2.3% stake in the company. The sale, which was arranged by Macquarie, comes a couple of weeks after the Hong Kong-listed Mongolian coking coal company said that its net profit almost doubled last year as it ramped up production. It also follows a gain of about 37% in the share price so far this year.
However, the deal had to contend with a sell-off in European stocks during the bookbuilding as investors worried about the growth implications from a fall in a eurozone purchasing managers’ index as well as a sharp drop in HSBC’s China flash manufacturing PMI in March. Stock markets in Asia closed mixed, with Hong Kong up a modest 0.2%, but in Europe the FTSE100 fell 0.8%, while Germany’s DAX and France’s CAC 40 gave up 1.3% and 1.6% respectively.
Even so, the MMC block attracted good demand and, according to a source, it was multiple times covered at the bottom of the price range when it closed at 10pm Hong Kong time after close to six hours of bookbuilding. This allowed the bookrunner to push the price to the middle of the range, which caused many of the hedge funds that had submitted orders to drop out, leaving the final book with a significant long-only bias.
The seller was Petrovis Resources, a Mongolian importer and distributer of petroleum products and one of MMC’s three major corporate shareholders. The source said it sold the shares to raise money for its own corporate purposes.
Petrovis offered to sell between 83 million and 86 million shares at a price between HK$7.35 and HK$7.65, which translated into a discount of 1.9% to 5.8% versus yesterday’s closing price of HK$7.80. The price was fixed at HK$7.50 for a 3.85% discount.
The seller also kept the number of shares at the mid-point, selling a total of 84.5 million shares, or approximately 2.3% of the outstanding share capital. While that is quite small, the deal was pretty chunky when measured against the daily liquidity, accounting for about 23 days of the average daily trading volume in the past three months.
That in mind, the bookrunners approached a few investors prior to launch, which would have made them more comfortable with the risk and also helped give the bookbuilding good momentum early on.
The source said there was a good take-up, both from Asian and from global funds based in Europe and the US. So far, MMC has been delivering on the growth plans that it laid out at the time of its Hong Kong listing in October 2010 — both with regard to production volumes and infrastructure development — and while the share price took a beating in the third quarter last year, it has recovered strongly during the past three months and is now back above the IPO price of HK$7.02 again. Investors may also have been attracted to the deal because of its rarity factor. Indeed, the source noted that global emerging market funds that want exposure to Mongolia don’t have that many stocks to choose from.
Petrovis owned about 11.4% before the sell-down and will continue to hold 9.1%, which will be locked up for 180 days. This means it will remain the second-biggest shareholder in MMC after the MCS Group, which owns about 43.5%, according to Bloomberg data. MCS is a Mongolian conglomerate that is the biggest taxpayer in the country and a market leader in numerous businesses. The third corporate shareholder is Kerry Mining, which owns 8.1%.
MMC said in its earnings report that its revenues grew by 95.5% to $542.6 million, while net profit increased by 98.2% to $119.1 million in 2011. The news triggered a 14.5% jump in the share price in just three days, pushing it to a 2012 closing high of HK$8.12, but last week the stock retreated with the rest of the market after China lowered its growth forecast for this year.
Part of the reason for the strong earnings was that it increased its coal production to 7.1 million tonnes of run-of-mine (ROM) coal from 3.9 million tonnes in 2010. But the average selling price also improved by about 60% as the company was able to charge more for the washed coal that it started to process when the first phase of its washing plant started operations in the second quarter last year. Coking coal is used primarily for making steel and the coal needs to be washed, or processed, before it can be used by the end customer.
The second phase, which will take the processing capacity to 10 million tonnes from 5 million tonnes, is finished and is due to start commercial operations by the end of the current quarter, while construction on the third phase, that will boost processing capacity to 15 million tonnes, is on track to be finished by the end of this year. The aim is to ramp up its production capacity of raw coal to 15 million tonnes by 2015 and to process all of this coal itself.
The company sold approximately 4.8 million tonnes of coal last year, through a combination of raw and washed hard coking coal — about 23% more than in 2010.
MMC raised $605 million from its Hong Kong IPO, which made it the first Mongolian company to trade on the Hong Kong stock exchange. Citi and J.P. Morgan were joint bookrunners.
