Chinese Estates scraps top-up placement

Hong Kong property developer Chinese Estates Holdings, which was in the market on Thursday trying to raise at least $200 million from a top-up placement, decided in the early hours of Friday morning not to proceed with the transaction. Sources say the deal was pulled even though there were enough orders in the book to cover the base size within the price range that the company had agreed to before the sale.

One source said the offering had attracted both good quality long-only investors and hedge funds and that a lack of demand was not the reason for the cancellation. The company confirmed this in a statement to the Hong Kong stock exchange late Friday, saying that based on the minimum number of placement shares, "the placing...was oversubscribed".

The company went on to say that it felt it would be "in the best interest" of the company and its shareholders for the placement price to be fixed "at a higher end" of the earlier agreed range. However, "only a minority of the intended placees opted for the higher end of the price range, and based on such results, the company considers that it is not in the best interest of the company and the shareholders to proceed".

It is highly unusual for a company to pull an offering if there is sufficient demand within the range and people close to BNP Paribas and Deutsche Bank, which were joint bookrunners for the deal, were clearly disappointed with the outcome. Especially since they were able to attract enough demand even as other market participants said on the day of the deal that it was quite an undertaking to try and place out that much stock in this name, which is not among the most liquid. The share price has also tripled over the past seven months and contrary to most other Hong Kong stocks, the rebound has taken it well above where it was 12 months ago, which would have made many investors cautious about buying in now.

The company offered 118 million shares at a price between HK$13.26 and HK$14.17, which represented a 7%-13% discount versus Wednesday's closing price. This deal would have allowed it to raise between $201 million and $215 million, which it said was to be used for general working capital. However, on the term sheet the issuer also flagged a potential for the deal to be upsized by an additional 29.5 million shares, which at the bottom of the price range would have resulted in deal size of $252 million.

Without the upsize option, the offering accounted for 5.9% of the existing share capital and about 40-45 days trading volume. It was the latter in particular that made market participants doubt investors would be that interested.

The deal was launched at around the opening of Hong Kong trading on Thursday and carried on throughout the London and US trading sessions, which suggested all was not going well. Investors were told by the bookrunners that the deal was covered, but by 3.30am Hong Kong time a price had still not been agreed upon. However, it wasn't until mid-morning Friday that it became clear the company had pulled the plug. Chinese Estates' shares were suspended from trading on Friday, meaning today will be the first chance investors have to react to this news.