Strong share price gains trigger two more placements

Activity in the Asian equity markets continues with two more deals last night. China State Construction International Holdings boosted its capital by HK$2.27 billion ($293 million) through a top-up placement that was upsized in full, and Philippine conglomerate Ayala Corp sold Ps6.45 billion ($154 million) of treasury shares.

The share prices of both stocks were close to 52-week highs and Ayala also came on the back of good demand for two other Philippine deals last week, including a top-up placement by its own property subsidiary Ayala Land. No doubt the company, with the help of Deutsche Bank as the sole bookrunner, was trying to take advantage of that demand to monetise some of its treasury shares, although the response was perhaps not as strong as it expected as it wasn’t able to exercise the upsize option.

China State Construction
China State Construction, on the other hand, attracted a lot of demand and a couple of large orders in particular that came in late in the day and allowed the bookrunners — BNP Paribas and Citi — to exercise the upsize option in full and tighten the allocations.

The company, which is a Hong Hong-listed subsidiary of state-owned China State Construction Engineering Corp and a sister company of China Overseas Land & Investment, offered 200 million shares, with the option to sell an additional 100 million shares in case of demand. As noted, that option was exercised in full, resulting in the sale of 300 million shares, or 8.3% of the existing share capital.

The shares were offered at a price between HK$7.57 and HK$7.81, which translated into a discount of 7% to 9.9% versus yesterday’s close of HK$8.40. The wide discount reflected the fact that the stock is fairly illiquid with the deal accounting for about 45 days of trading volume. The share price has also had a strong run lately and is up 15.9% in the past two weeks alone. It hit a 52-week high of HK$8.47 on Monday.

Despite the strong demand, the price was fixed at the bottom of the range at HK$7.57 for a 9.9% discount. Part of the reason, according to a source, was that the company was aiming to sell the full 300 million shares, and had indicated to investors that it would be willing to pay to upsize (in the form of a bigger discount).

At the final size, the deal was said to be close to two times covered with orders from about 120 investors. According to the source, close to 80% of the shares were allocated to long-only funds, including some existing shareholders. The order book was initially very Asia-dominated, but as the large orders that came in late were from the US, the final tally was more balanced. The books were closed for Asian investors after about two hours at 7.30pm Hong Kong time, but kept open for US investors until 9pm.

Given the number of investors, China State Construction clearly seems to have caught the attention of investors. It is the largest construction company in Hong Kong with a number of flagship construction and civil engineering projects in its portfolio, including the passenger terminal at the Hong Kong International Airport, the infrastructure for the Penny’s Bay development that is now home to Disneyland and several major reclamation projects in Central, Wan Chai and West Kowloon. But it is also active overseas, particularly in the United Arab Emirates, India and, of course, mainland China, where it has been involved in a lot of infrastructure projects. As such, it expected to be a key beneficiary for any additional stimulus programmes in China — something that has been a focus in the market during the past few sessions.

Last week the company said it received HK$27.5 billion worth of new contracts in the first six months this year, which is up 42.3% from the same period last year and accounts for more than 83% of its full year target. As of the end of June, its on-hand contract value was approximately HK$98.8 billion, including a backlog of about HK$65.6 billion. This marks a 37% increase from a year ago and will keep the company going for the next three years. Among the new contracts is a road project that will link to the Hong Kong-Zhuhai-Macau bridge. The contract, which is to be completed by January 2017, is awarded by the Hong Kong government and has an attributable value of about HK$8.87 billion.

China State Construction said it will use the proceeds from the top-up placement for general working capital, business expansion in mainland China and to support the funding of new affordable housing projects.

Ayala Corp
The second deal in the market last night seemed to be a bit more opportunistic. Like many other Philippine companies, Ayala Corp bought back its own shares during the financial crisis and has been sitting on them ever since. And with the current positive sentiment for the Philippines — the country’s stock market is the best performing market in Asia year-to-date with a 20.9% gain — it probably saw an opportunity to offload some, or all, of that stock. Ayala Land was able to upsize its top-up placement last week by about 28% to $323 million and has traded well since. The share price never fell below the placement price and yesterday it closed 4% above, which compares with a 5% placement discount.

Ayala offered 15 million shares with an option to sell another 5.18 million shares in case of demand. If the upsize option had been exercised, the deal would have accounted for all of the company’s treasury shares. But, as mentioned, it wasn’t. The base deal represented 2.6% of the company and about 34 days of trading.

The shares were offered at a price between Ps430 and Ps440, which translated into a discount of 3.9% to 6.1% versus yesterday’s close of Ps458. It was fixed at the bottom of the range for the maximum 6.1% discount.

One source said there was strong support from both domestic and international long-only funds, including some existing shareholders. There was also some hedge fund demand. Close to 50 investors took part in the transaction. Looking purely at the level of demand, the source said the company could probably have allocated part of the upsize option as well, but decided against it to maintain the high quality of the final order book.

Ayala Corp is the main holding company of the group, and owns controlling stakes in a variety of businesses, including several listed companies such as the Bank of the Philippine Islands, Globe Telecom, Manila Water and Ayala Land. As the Philippine economy has continued to outpace the struggling markets in Europe and the US, the company’s share price has had a strong run and as of yesterday it was up about 53% year-to-date. It hit a 52-week high of Ps481 on July 3 and 5, but fell back a little following Ayala Land’s placement last week.

Late in the Hong Kong evening it seemed that China State Construction and Ayala may have timed their transactions to perfection as US markets fell in the first hour of trading following a speech by Ben Bernanke that was initially interpreted as pretty negative and short on promises of further market stimulus. However, the markets did recover later in the session and, when the closing bell tolled, the Dow Jones index was up 0.6% and the S&P500 had added 0.7%.