Either way, Hong Kong saw a second small placement yesterday û alongside International Business MachinesÆ fifth sell-down in Lenovo Group û as an undisclosed institutional investor sold HK$533 million ($68 million) worth of shares in Bank of China. The deal, which was arranged by UBS, was launched and completed during the two-hour lunch break after the share price gained 3.2% in the morning session. This was possible because the transaction accounted for only 0.2% of the outstanding share capital and no more than half a dayÆs trading volume, making it easy for the market to absorb.
The fact that the investor chose to hire an investment bank to handle the sale through a block trade rather than to trickle it out through the market, is in line with a trend that has been running for most of this year. ôInstitutions use block trades to take away market risk. Right now we are seeing a bounce in the market, but there is no way of knowing how long it will last,ö says one observer.
The investor sold 156.784 million shares, which is believed to have been its entire holding, or very close to it. They were offered at a price between HK$3.38 and HK$3.47, or at a 0.9% to 3.4% discount to the morning close of HK$3.50. According to a source, there was some price sensitivity around the 2.9%-3% discount level, and the final price was set at HK$3.40 for a 2.9% discount. Still, it must be viewed as encouraging that the deal didnÆt price right at the bottom, as has been the case with so many other placements over the past few months.
The source says the book was covered within 30 minutes but was kept open for another hour and was eventually multiple times subscribed. It attracted about 40 investors in all. Not surprisingly, given the time of day, the buyers were predominantly Asian but included a few European names as well.
Bank of ChinaÆs share price is currently trading 16.5% above its mid-March low of HK$2.96 and is up by about the same amount since its May 2006 initial public offering, which was priced at HK$2.95. If the undisclosed investor has held on to the shares since then, it could still be sitting on a respectable profit. The buyers, on the other hand, are likely to have focused on the fact that the share price has dropped 34% from the early November high of HK$5.19 and that 18 analysts covering the stock still have a buy recommendation on it. The other eight analysts all rate it a ôholdö. The consensus target price is HK$4.43, implying 30% upside from the placement price.
The share price fell 5 HK cents to HK$3.45 after the transaction yesterday afternoon, but held above the placement price and gained 1.8% on the day. Meanwhile, the Hang Seng Index added 3% yesterday, bringing the total gain in the past four sessions to 1,358 points, or 15.6%.
Before yesterdayÆs two block trades there had been only one other share placement by a Hong Kong-listed company in the past month û a small $45 million sell-down in renewable energy firm China Power New Energy Development last week by a company owned by China PowerÆs vice-chairman and a former executive director. CLSA arranged the trade, which was priced at the bottom of the indicated range for a 10% discount.
However, bankers say there could be a few more transactions over the next few days as investors take advantage of the improved sentiment triggered by better-than-expected second quarter earnings from several large US banks, including JPMorgan, Citi and Bank of America. BoA reported before the start of US trading yesterday and contributed to a stronger opening on Wall Street. After two hours of trading, the key indexes were largely flat, however, signalling that last weekÆs impressive 3.6% gain in the Dow Jones index may be coming to an end.
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