Undisclosed investor sells $160 million in China Resources Enterprise

An undisclosed institutional investor took the chance yesterday to sell HK$1.25 billion ($160 million) worth of shares in China Resources Enterprise ahead of what bankers in Hong Kong expect will be a busy fourth quarter. Several initial public offerings are set to start marketing within the next couple of weeks and there is a slew of listing hopefuls seeking to raise funds before the end of the year.

To beat the anticipated rush may therefore be a smart move for an investor who is looking to cash in part of its portfolio -- even if it does mean missing out on a few potential fund managers who are still on holiday.

Indeed, the relatively quiet market posed no problem for this particular institutional investor who saw good demand for its Hong Kong-listed China Resources shares, which were sold during the lunchtime break yesterday. Even though the order book was open for only 75 minutes, the deal was said to have been comfortably covered and the price was fixed slightly above the bottom end of the range.

The seller offered 64.4 million shares, or about 2.7% of the share capital, at a price between HK$19.25 and HK$20. The range represented a discount of 4.8% to 8.3% versus the HK$21 where the stock ended the morning session. By that point, the share price was up 2.9% from Friday's close in line with a generally stronger market.

The final price was fixed at HK$19.35 for a 7.9% discount to the morning close and a 5.1% discount to the last price in the previous session.

The block attracted a couple of lumpy orders from long-only accounts and what was described as decent interest from the hedge fund community. The allocation between long-only and hedge funds was said to have been pretty equal, however. About 25 investors participated in the trade.

The transaction was arranged by Credit Suisse, which did a similar lunchtime block trade in China Resources for an institutional investor in June. The bank would therefore have had a fairly good idea of where the demand for this stock may be, which is obviously helpful on deals that have to be cleared in a short time. The fact that China Resources is a well-known name and part of Hong Kong's benchmark Hang Seng Index would also have helped in terms of getting a quick response from investors. A red-chip focusing on consumer businesses in both Hong Kong and the mainland, the company's core activities include retail, beer and water, food processing and distribution, textiles and property investment.

The beer business continued to see strong volume growth in the second quarter, which led to a first-half growth in the high teens, while the purified water business saw large margin expansion due to falling package costs in the first half of the year, according to a Macquarie research note citing preliminary data. Analysts at the bank said they expect the beer business to register strong growth for 2009 as a whole and they have also become more optimistic about the supermarket business, where the low base and rising consumer confidence are likely to result in an improvement of same store sales in the second half. Meanwhile, the company's cyclical non-core assets, such as logistics, textiles and ports, are gradually bottoming out.

"Although the 1H09 results may still be dragged down by non-core businesses, we expect them to bottom out in 2H09 and believe they could have upside in 2010," the Macquarie analysts said in the note.

China Resources is scheduled to release its first-half results on September 3.

It wasn't clear whether yesterday's seller was the same as for the June block, or whether the undisclosed institutional investor will still hold shares in China Resources after yesterday's sale. If it does, it is not subject to a lock-up.

In June too, the seller wasn't immediately disclosed and identified only as an undisclosed institutional shareholder. A couple of days later, however, the Commonwealth Bank of Australia disclosed in a filing to the Hong Kong stock exchange a sale that matched the placement in terms of both size and price. Following that sale, the CBA still held 151.8 million China Resources shares, equal to a 6.35% stake in the company, which means it could have been the seller yesterday as well.

The June block comprised about 52 million shares that were sold at a price of HK$16.16 per share for a total deal size of HK$840.3 million ($108 million). The price represented a 4.4% discount versus the morning close on the day of the deal and a tight 1.2% discount versus the previous day's close.

China Resources continued to trade relatively well in the afternoon session yesterday, and while the share price dipped to an intraday low of HK$19.14, it did finish slightly above the placement price at HK$19.40 -- a 4.9% drop on the day.

Even with yesterday's fall, China Resources is up 45.6% year-to-date compared with a 42.7% gain in the HSI. The stock has risen 82% from its 2009 low in early March and hit a 12-month high of HK$21.40 on August 10.