The placement came on August 9, almost immediately after the lunch break. In the morning the Hang Seng Index had recovered some of the ground it had lost earlier and seemed to be continuing the upward momentum from the previous trading day.
By the afternoon the situation changed dramatically and markets plummeted. The trigger was a plunge in European markets, marked by BNP Paribas freezing three funds exposed to the US subprime mortgage market. The Hang Seng Index lost 646 points or 3% on August 10, closing the week at 21,792.
CNBM priced at the floor of an indicative range of HK$17.80 to HK$18.25, representing a 9.8% discount to its last traded price of HK$19.74.
ôThe price range held all the way through, irrespective of the sudden change of market movement direction,ö says a source close to the deal.
The China-based company produces cement, lightweight building materials, glass fibre, fibreglass reinforced plastics products and offers engineering services. China's current construction boom has ensured a steady demand for the company's products.
Of the 149.7 million shares, or 16.6% of the enlarged H-share capital CNBM sold, 91% were new shares while the rest were shares sold by the National Social Security Fund. CNBM said the proceeds will be used for business development, including funding acquisitions. This was CNBM's first share placement after the its March 2006 initial public offering, when it raised HK$1.80 billion ($232 million), at a per share price of HK$2.75.
To minimise exposure to a volatile market, CNBM opened its books only briefly. When the deal was comfortably covered with 40 investors, sole bookrunner Morgan Stanley started allocation. As a result, the majority of the demand came from Asia, with only a few accounts from Europe and the US. Most investors were long-only funds, although a few hedge funds also placed orders.
ôIn the current declining market, many hedge funds are de-risking or re-assessing their risk appetite with some of them taking more long positions than they traditionally have," comments a specialist, explaining why the book had some new names participating.
CNBM has consolidated its position in the cement and building materials industry via a spate of recent mergers and acquisitions. By the end of July it had acquired majority stakes or full ownership of a number of players including Zhonglida Group, Lima Cement, Yaya Cement, Shenhe Cement, Zhejiang Tongxing Cement, Hejiashan Cement, Zhongsheng Building Material, Zhongsheng Cement, Anhui Feida Cement and Zhejiang Tianji Cement. It also plans to set up a joint venture with Jiangxi Cement.
CNBM's share price has reacted favourably to these announcements and climbed 19% over the last fortnight to reach HK$19.74 on August 9. It plunged 16% after trading resumed on August 10, in tandem with the broader market.
CNBM's 2006 IPO, which was led by Morgan Stanley, was priced at the top of the range. The outcome the US investment bank orchestrated for its repeat client this time round is no less an achievement, given the recent volatility in markets - and the cash pile CNBM is now sitting on could prove very useful if investors in the region continue to exhibit nervousness.
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