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It has been a busy few weeks in the equity capital markets as issuers and existing shareholders take advantage of the latest market window to sell stock before companies move into a blackout period before their six-month earnings. Last night saw another three blocks hit the market, raising a combined $917 million.
The largest of them, by far, was a sell-down in Malaysian mobile operator Maxis by its controlling shareholder, which at the final price totalled M$2.36 billion ($740 million). This made it the largest overnight block trade ever in Malaysia and the largest in Southeast Asia since Siam Cement raised $1.1 billion from a sell-down in Thailand’s PTT Chemical in December 2010.
The deal was driven by reverse enquiries by local and international institutions and was almost covered at launch. The order books were kept open for only 50 minutes and the price was fixed at the mid-point for a 4% discount to the latest close.
The other two blocks were in two separate Indonesian free-to-air TV channels that are both owned by Elang Makhota Teknologi, an Indonesian company better known as Emtek, which is involved in media, telecommunications, IT solutions and connectivity. Emtek raised Rp975 billion ($102 million) from the sale of a 5% stake in Surya Citra Media and Rp714.4 billion ($75 million) by offloading 6% in Indosiar Karya Media. Both deals were upsized, which was viewed as positive since the key purpose was to increase the free-float and liquidity in the two stocks.
The reason for selling differs from case to case, but the recent pickup in activity does make one wonder if the sellers and issuers are also concerned that the overall market environment may remain challenging for the rest of the year, and hence want to get their deals out the door as soon as possible.
Last night offered some respite from the recent negative sentiment, however, as markets in Europe and the US rallied on the back of comments from the European Central Bank chief, suggesting that the ECB is ready to move aggressively to increase economic growth in Europe and provide the liquidity needed to boost ailing countries like Spain and Italy. His comments clearly took the markets by surprise and in Europe they resulted in a short-squeeze that pushed benchmark indices sharply higher.
In London, the FTSE100 finished up 1.4%, while Germany’s DAX added 2.8% and France’s CAC40 gained 4.1%. Spain jumped more than 6%. And the gained continued in the US where the Dow Jones index rose 1.7%.
Of course, the sellers of the three Asian blocks that were in the market last night didn’t know this when they launched their deals.
Maxis
The seller of the Maxis shares was Maxis Communications, a non-listed telecom operator controlled by Malaysian businessman Anand Krishnan. The sale, which was the first by the parent since Maxis’s IPO in November 2009, will trim its stake to 65% from 70%.
Maxis Communications offered 375 million shares, or a 5% stake in the company, at a price between M$6.23 and M$6.34 per share. The price range equalled a discount of 3.1% to 4.7% versus yesterday’s close of M$6.54. The final price was fixed at M$6.28 which, as noted, translated into a 4% discount.
Demand was described as very strong, helped by the heavy anchor orders. In all, close to 80 investors came into the transaction, but one source said almost 90% of the deal was allocated to the top five accounts. The demand was said to have been split about 60:40 between domestic and international investors and most of the buyers were long-only funds.
Malaysian pension funds like Maxis for its steady yield, which is currently estimated at around 6.1% to 6.3%. Unfortunately many of them buy the stock to hold, which means that even though Maxis is a large-cap company, it is not particularly liquid — last night’s trade accounted for more than 70 days’ trading volume. This explains the reverse inquiries, as well as the strong interest in the block in general.
Another buying argument is that the increase in the free-float to 35% from 30% will lift Maxis’s weighting in the MSCI index series, which will force anyone benchmarking against the relevant indices to increase their holding accordingly.
The block came just ahead of an earnings blackout that starts on Monday and follows a 19% gain in the share price so far this year. The stock hit a record high above M$6.70 just a few days ago.
CIMB and Credit Suisse were joint bookrunners for the transaction.
Indonesian blocks
The Indonesian blocks were part of an emerging trend that is seeing existing shareholders offer shares in two companies in the same industry through separate, but concurrent deals. This one stood out a bit as the seller wasn’t an institution, but rather the parent company, and also because there wasn’t that much demand overlap between the two transactions.
Emtek offered 78 million shares in Surya Citra Media with an upsize option of a further 38 million shares, half of which was exercised. This resulted in a total deal size of 97.5 million shares. The shares were marketed in a range between Rp9,830 and Rp10,585, which translated into a 2% to 9% discount versus yesterday’s close of Rp10,800.
Demand was said to have been good, but price sensitive and the price was fixed above the bottom of the range at Rp10,000, resulting in a 7.4% discount.
It also offered 81 million shares in Indosiar Karya Media, a TV channel that it bought control of as recently as last year, with the option to upsize to 121.5 million shares in case of demand. The shares were offered at a price between Rp5,460 and Rp5,880, which translated into the same 2% to 9% discount as for Surya Citra Media.
Perhaps partly a reflection of the smaller deal size in dollar terms, the demand for this stock was relatively stronger and the bookrunners were able both to exercise the upsize option in full and to fix the price at the top of the range for a tight 2% discount.
Surya Citra Media was anchored at launch by a combination of global long-only and domestic funds and one source estimated that some 65% of the final demand came from international long-only funds, 25% from domestic funds and 10% from hedge funds. The deal attracted more than 30 accounts in all.
Indosiar Karya Media had a slightly different demand composition with about 55% coming from domestic accounts, 35% from global long-only investors, and 10% from hedge funds. More than 20 investors took part in the deal.
The order books were open until 11pm Hong Kong time, which seems to have been worth it as both deals were said to have attracted a number of US-based investors.
The Indonesian media sector has attracted quite a lot of interest as a play on the domestic consumption theme, and investors have been approaching Emtek saying they would like to be able to invest in these companies. However, with Surya Citra Media having a turnover of only $300,000 per day and Indosiar Karya Media only marginally better at $500,000, that has so far been really difficult.
Hence Emtek’s decision to release some more shares into the market. Its stake in Surya Citra Media will fall from 80% to 75% after last night’s sale, while its holdings in Indosiar Karya Media will drop from 80% to 74%.
CLSA was a global coordinator for both deals and joined as a bookrunner by Credit Suisse and Deutsche Bank.
