Softbank fund sells $57 million worth of Digital China shares

A venture capital fund backed by Softbank last night cashed in about a quarter of its investment in Chinese integrated IT services provider and computer distribution company Digital China, raising HK$439.7 million ($57 million).

The small placement came on the back of a more than 300% run-up in the company's share price this year, but even so, the sale generated a lot of interest among investors who were keen to buy into analyst projections of a continued pickup in IT spending in China and an increased PC penetration rate in fourth- to sixth-tier cities in particular.

The fact that the seller, SAIF II GP Capital, retains the bulk of its holdings in Hong Kong-listed Digital China and will now be locked up for three months helped alleviate any potential concerns that it was selling because it felt the share price may be nearing its limit. The share price did fall 1.3% in a softer overall market yesterday, however, and finished 5.2% below the record high closing price of HK$10.22 that it reached on Tuesday this week.

The deal was launched after the Hong Kong market closed and, according to a source, it was covered in about 30 minutes. When it closed at about 7pm Hong Kong time, sole bookrunner BOC International had received orders for five times as many shares as it had to distribute and, with little price sensitivity in the book, the price was fixed at the top of the offering range for a 5.5% discount versus yesterday's close.

SAIF (Softbank Asia Infrastructure Fund) offered to sell 48 million shares at a price between HK$8.67 and HK$9.16, which translated into a discount of 5.5% to 10.5% versus the latest market price of HK$9.69. The deal accounted for about 4.7% of the outstanding issued share capital and 24 days' worth of trading volume, based on the daily turnover in the past month.

SAIF will still hold about 13.6% of Digital China after this transaction and will continue to rank as the controlling shareholder when its holdings are pooled with those of affiliated parties. One of those is Hong Kong-listed computer manufacturer Lenovo's parent company, which owns about 16%.

More than 40 investors submitted orders for the shares, including quite a few that were new to the company. Investors based in Asia and Europe bought the majority of the offering, although there were also a few orders from the US.

This was the second chance in two months investors had to buy Digital China shares in bulk. In mid-September the company raised $49 million from a top-up placement that was priced at a 6.5% discount to the market price, or at HK$6.60 per share -- again the price was fixed at the top of the range. The placement, which was arranged by J.P. Morgan and Macquarie, was about one-third covered at launch by an anchor investor.

Since that placement, Digital China's share price has risen 37.3%, which would have added to the desire among other investors to get in this time.