Tingyi share sale fails

The block of shares in noodle maker Tingyi that was in the market on Monday night was scrapped after failing to find enough buyers, sources said yesterday.

The shares accounted for 0.7% of the Hong Kong-listed company — Tingyi (Cayman Islands) Holding Corp — and were offered by an unidentified institutional shareholder that was seeking to raise between HK$908.8 million and HK$918.4 million ($117 million to $118 million). Given that Tingyi has a market cap of about $17 billion that did not seem too demanding.

However, the indicated price of HK$23.75 and HK$24 translated into a discount of just 1% to 2.1% versus Monday’s close of HK$24.25, which investors deemed too tight to be interesting.

One source said that the seller had very specific expectations and when those couldn’t be realised, it chose not to sell any shares.

The deal was arranged by Goldman Sachs, but even though a term sheet was sent out and the shares were offered with a price range, sources said the equity capital markets team and the equity syndicate desk weren’t involved. Instead, the share sale was handled by the firm’s institutional sales desk.

Rival bankers questioned whether this was actually the case, though, given the size of the offering and the fact that it definitely had the look and feel of an ECM-driven block trade.

For sure, these types of sales are done by banks on behalf of their clients all the time as part of their general sales activities. However, they are typically quite small and it is highly unusual to see a sales desk handle a trade that is larger than $100 million. And it is even more unusual that these types of sales are accompanied by a term sheet and that the shares are offered with a price range since that implies the use of a bookbuilding exercise.

The more common way would be for the sales desk to get on the phone with a few clients to try to find takers for the shares.

On the other hand, it seems unlikely that the ECM team would agree to do the sale at such a tight discount without having a pretty good idea that there were buyers out there at that price.

Either way, since the seller wasn’t disclosed, Goldman wouldn’t have been able to claim league table credit for the deal even if it was handled by its ECM team.

And whatever the background of the trade, it is unfortunate to see a deal getting pulled as markets are still quite fragile — even if sentiment has improved in the past month as investors have been making money on block trades. However, the deal activity could quite quickly drop off again if more deals fail, or if sellers start to become too greedy when it comes to discounts and the banks allow deals that are priced too tightly to hit the market.

Tingyi’s share price dropped 2.3% yesterday following the cancelled trade, finishing at HK$23.70. The Hang Seng Index added 0.3%.