The sales came on the back of a pretty positive day in the secondary market with the Hang Seng Index û and the rest of Asia - trading higher for most of the day. The HSI dipped below the previous close shortly before the end of the session and finished down 0.25%, but this was still a significant improvement on the weak trading recorded on Monday.
These are the first block trades in Asia this year and the fact that they both attracted solid demand from high-quality investors is expected to give other shareholders and issuers in the pipeline the confidence to go ahead with their deals.
However, as indicated already in December, this is now clearly a buyersÆ market and the $200 million China High Speed trade in particular showed that investors remain cautious about price. The UBS-led deal was offered at a discount of 3% to 7% versus yesterdayÆs closing price, and ended up pricing at the most generous end. According to a source, few orders came in at the strike price and there were also several orders with price limits at the bottom of the price range, making it difficult to move the price inside the maximum discount.
The final price was fixed at the bottom of the HK$17.88 to HK$18.64 range, resulting in a total deal size of HK$1.56 billion. The sellers werenÆt disclosed, but according to a source, they bought into the company before its initial public offering in June this year, which suggests they were sitting on sizeable profits and likely didnÆt worry too much about the 7% discount. The manufacturer of gearboxes for wind turbines has rallied 171% since its IPO to yesterdayÆs close of HK$19.22.
The deal comprised 87.2 million shares and attracted just over 40 accounts and about $350 million worth of demand. As a reflection of the market environment, the bookrunners secured enough demand to cover the deal before launch, however. The other half was covered in about an hour and a half after the Hong Kong market closed.
The demand was primarily Asia-based and included several China-focused long-only funds, the source says.
The much smaller $80.1 million block in Parkson was launched at a fixed price, which represented a 5% discount to the HK$82.80 close. The company, which operates department stores in China, has been on a downward track since the beginning of this year after closing at a record high of HK$93.95 on New YearÆs Eve. The fixed price can be seen as an indication that the underwriters felt there wouldnÆt have been much point in setting a range as the final price would end up at the bottom anyway. However, this strategy also requires some skill as the bankers donÆt have any flexibility and only have one chance to get the price right.
The strong demand for the Parkson trade û some talk in the market was that it was more than three times covered û suggests that bookrunners BNP Paribas and JPMorgan at least got it right from the investorsÆ point of view.
The deal comprised eight million shares that were offered at HK$78.66 apiece for a total deal size of HK$629.3 million. The shares, which accounted for about 1.4% of the existing share capital, where sold by MalaysiaÆs Lion Group through its Parkson Holdings unit. Parkson Holdings is the controlling shareholder of the Hong Kong-listed unit and held about 55% prior to this transaction.
While neither of these two blocks were particularly aggressively priced, it is hard to fault the banks for their strategies on the first overnight trade of the year û especially with the Hong Kong market having opened 2008 on a weak note. Or as one banker put it: ônobody would award them for being brave.ö
Also, observers say there is still a bit of a disconnect between the price that investors want to pay and that which sellers are willing to accept, and the trick is to find that middle ground to ensure the deal gets out the door.
That said, it is now a new year and investors have money that they need to put to work, which makes the current environment significantly different to December when many portfolio managers were reluctant to increase their exposure and didnÆt mind holding a bit of extra cash. As long as the secondary market doesnÆt fall too much from current levels, this should bring out more placements and block trades in the coming few weeks, bankers predict.
¬ Haymarket Media Limited. All rights reserved.
