The completion of a $287 million block trade in Korea Aerospace Industries (KAI) on Wednesday and a $99 million clean-up trade in Man Wah Holdings one day earlier may finally herald the end of a dry period for secondary market equity deals following a very arid start to 2016.
So far this year, the only major deals have been Samsung SDI’s $455 million sale of Samsung C&T shares in late February and the Indian government’s $732 million offer for sale in NTPC earlier the same month.
More recently, there have been a handful of $100 million plus deals with: IBM’s $150 million divestment in Lenovo; India’s $174 million sell-down in Container Corporation of India; a $128 million divestment of Infosys shares by two founding members, plus a $300 million block trade in Kotak Mahindra shares.
Bankers said India, Korea and Hong Kong should continue to be the focus of activity now the results season is closing, with potential privatization deals from India, the unwinding of circular shareholdings from Korea and private equity exits in Hong Kong.
Korea Aerospace
Hyundai Motor divested half of its 10% stake in state-owned aircraft manufacturer KAI after Wednesday’s close.
The 4.87 million share deal was fixed at W70,200, the lower end of a W70,000 to W71,500 range. The represented a 5.1% discount to the stock’s W74,000 close.
Bankers said the deal received decent demand despite a significant overhang on the stock following the expiry of a four-year lock up covering a number of its major shareholders.
When KAI first listed in 2011, the company's controlling shareholders - Korea Development Bank (KDB), Hanwha Techwin, Hyundai Motor, and DIP Holdings - agreed not to divest their stakes until the end of 2015 unless it was through a mutually agreed joint sale.
Once this lockup expired, Hanwha Techwin was the first to act with the divestment of a 4% stake raising $235 million in late January through JP Morgan and Hanwha Investment & Securities. Later that same week, Doosan Corporation sold another $254 million worth of KAI shares via a private placement led by Credit Suisse.
More KAI shares are likely to be put on the block in the near future given Hanwha Techwin has another three-month lockup expiring early next month, not to mention potential sales by KDB and DIP Holdings.
Hyundai Motor may also sell its remaining 5% stake, although the earliest this could happen is mid-June since it is now subject to a 90-day lockup.
Year-to-date KAI’s share price is down 5.25% compared to a 0.69% rise in the Kospi index. However, it has recovered 18% from a year-to-date low in late January.
Bank of America Merrill Lynch was the sole bookrunner for the latest KAI block.
Man Wah
One day before the KAI block, Chinese private equity firm CDH Investments executed a successful clean-up trade in Hong Kong-listed furniture manufacturer Man Wah Holdings.
When the deal first hit the market, it was pitched as a 40 million share offering. However, after receiving strong demand from investors, the group decided to offload its entire 95.7 million share stake.
In return, it priced the deal at the bottom of a HK$8.05 to HK$8.20 price range. This HK$8.05 price represented a 7.4% discount to Tuesday’s close.
As a result of the sale CDH has made at least $9 million on the stake, having acquired Man Wah shares for $99 million in 2013.
Nearly 40 accounts participated in the deal, including Man Wah chairman, Wong Man Li, who subscribed for 25 million shares, or approximately 26% of the total deal size. The top three accounts took more than 50% of the deal.
Strong demand may have been driven by the company’s buyback policy. Since the beginning of March, it has repurchased nearly six million shares on four separate occasions, according to regulatory filings.
The buyback price has ranged from HK$9.01 to HK$9.26. These levels represent a roughly 12% premium to CDH’s divestment price, potentially comforting new investors about their entry price via Tuesday’s block.
Citic CLSA was the sole bookrunner of the block trade.
The pipeline
From India bankers are expecting more government privatizations as it tries to meet its annual divestment target of Rs300 billion ($5.3 billion) by the end of this month.
According to the department of disinvestment, the five state-owned companies that remain on the block include Oil & Natural Gas Corp (ONGC), Bharat Heavy Electricals, National Aluminium Corp, Hindustan Copper and National Hydroelectric Power Corp.
Potential transactions from Korea include Samsung Fire & Marine Insurance and Samsung Electro-Mechanics’ disposal of Samsung C&T shares, as well as Lotte Data Communication and Lotte Engineering & Construction’s sale of their remaining stakes in Lotte Shopping.
