According to sources, the deal was more than three times subscribed, which suggests investors submitted orders for close to $1.6 billion of stock. And that was despite the fact that the share price closed at a record high on Wednesday (after rallying 10.6% on the day) and at the time of pricing was up 21% year-to-date. It has risen 367% since the initial public offering at $17 in July 2005.
The deal was only about half covered at the start of the final day of bookbuilding last Thursday, but US investors had built up a bit of a shadow book which was transformed into real orders on the last day û perhaps encouraged by the fact that the share price came down slightly on that day.
Once they decided to participate, though, investors werenÆt very price sensitive, as evidenced by the fact that the shares were sold at a tight 0.93% discount to ThursdayÆs closing price of $80.25. However, the share price did fall 1.2% to $79.29 on Friday in the wake of the pricing, and after a slight recovery in after-hours trading finished the week at $79.39.
Even so, the outcome of this sale, which was jointly arranged by Citigroup, Credit Suisse, Goldman Sachs and Merrill Lynch, will be encouraging to the handful of other Chinese companies that are lining up to tap investor demand in the US equity capital markets in the near future. Among them are Mindray Medical International and New Oriental Education & Technology Group, whose shareholders are looking to cash in part of their profits, and 3SBio Inc, which is currently conducting pre-marketing for a Nasdaq IPO.
About 140-145 investors participated in Focus Media's sale. According to sources, the great majority, or more than 70%, of investors were US-based, while UK-based accounts also subscribed for slightly more stock than Asian investors. A lot of them already held shares in the advertising firm, suggesting they think more upside is in store.
ôFocus Media is very liquid and it is also a very well-known company to investors since it comes to market quite frequently,ö one observer says with regard to the good demand. He was referring to the sell-downs every six months or so by its venture capital investors and the previous owner of Target Media International who received Focus Media shares when the two companies merged early last year.
As the operator of the largest out-of-home flat panel display advertising network in China, Focus Media is also well placed to benefit from ChinaÆs rise to the fourth largest advertising market in the world, analysts say.
The share price gains have been underpinned by strong earnings growth, which in turn has been supported by an aggressive expansion of the companyÆs advertising space. Between January 2005 and September 2006 the number of displays in the companyÆs commercial location network increased from 15,415 to 68,723, while its in-store network consisted of 36,387 flat-panel displays in close to 3,900 stores at the end of the third quarter.
For the nine months to September 30, 2006, the net profit jumped to $53.1 million from $14.1 million in the year-earlier period and $23.5 million for the full year 2005.
The fully-marketed deal comprised a total of 6.66 million American Depositary Shares, each of which accounts for 10 common shares. Of this, 77.5% was secondary paper being sold by various existing shareholders - Target Media, Tiger Global Management, Carlyle Entities and Total Team, which is owned by l4 different shareholders, including company President Zhi Tan. Jason Nanchun, the founder, chairman and CEO of the company, didnÆt participate in the base offering but will sell up to 998,355 ADS if the 15% greenshoe is exercised.
Target Media will hold no more than 0.34% on the company after the sale, while CarlyleÆs stake will fall to 2.2% and the ChairmanÆs interest will be trimmed to 12.4% from 12.74%. Total Team will sell its entire 4.16% stake.
The remaining 1.5 million ADS were backed by new shares, which will result in approximately $115 million of net proceeds for the company. It didnÆt specify how it will use this money, saying only that they will go towards future acquisitions and general corporate purposes.
Including the greenshoe, the total deal size will increase to $608.5 million, which will be 46% larger than the $416 million sale of Focus Media shares in July last year, which also included some new shares. Both sales comprised the same amount of ADSs, however, meaning the difference is all down to the price increase since then. The July sale was also completed at a 0.9% discount to the market price at the time, or at an absolute price of $54.50.
Target Media, Carlyle and two other shareholders also sold a combined $140 million of secondary shares in a Credit Suisse-led transaction in September. That deal was done at $57 per share, which represented a 1.5% discount to the latest closing price.
Next in line to complete a deal will be medical devise manufacturer Mindray, which is expected to price a secondary share offering of about $270 million after the close of New York trading tomorrow (January 30). The sale, which is arranged by Goldman Sachs, JPMorgan and UBS, is comprised of 11.3 million ADS offered by 10 existing shareholders.
Meanwhile, New Oriental, the largest provider of private educational services in China, is offering 7 million ADS, of which 92% are backed by secondary shares. Based on the current share price, the sale could raise about $250 million. Credit Suisse, Goldman Sachs and Merrill Lynch are the arrangers.
Both Mindray and New Oriental listed on the New York Stock Exchange in September last year and have seen remarkable share price gains since. As of last Friday Mindray was up 81.5%, while New Oriental had risen 135% above its IPO price.
The smallest of the known deals in the pipeline is 3SBio, which is being brought to market by UBS. The developer and manufacturer of pharmaceutical products is hoping to raise up to $108 million ahead of a Nasdaq listing from the sale of 7.7 million ADS, or 35.8% of the company, at a price between $12 and $14. Primary shares account for 93.3% of the total and the money raised from that will be used to fund clinical trials, research and development and to expand and enhance the companyÆs manufacturing facilities and sales and marketing networks.
3SBioÆs flagship product, EPIAO, is used to stimulate the production of red blood cells in patients with anaemia and reduce the need for blood transfusions.
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