Private equity fund CDH Retail yesterday sold close to one-third of its remaining stake in Hong Kong-listed Belle International Holdings, taking advantage of a massive share price gain this week. Coming on a day when Asian markets rallied strongly, the block attracted strong demand, which prompted the bookrunners to close the order books after just 30 minutes.
The deal was priced at the top of the indicated range for a 4.1% discount to the latest close and a total deal size of HK$1.02 billion ($131 million).
An upsize option of 20 million shares was also exercised in full, which increased the base offering by 40% to 70 million shares. However, the block was small in relative terms at just 0.8% of the total share capital and three days’ worth of trading volumes.
CDH, which invested in the shoe manufacturer/retailer and sportswear retailer before its IPO in May 2007, offered the shares at a price between HK$14.30 and HK$14.60. This translated into a discount between 4.1% and 6.0% versus yesterday’s close of HK$15.22. The discount wasn’t particularly generous considering that the share price had gained 6.4% earlier in the day. It is also up 13.9% this week — even after taking into account a 4.8% drop on Wednesday. The buying has been partly driven by an increase in risk appetite and a renewed interest in Chinese consumer retails stocks.
Belle is one of the largest and most liquid consumer names available. The company makes and sells popular women’s shoe brands like Belle, Staccato, Millie’s, Joy & Peace and Mirabell, and also acts as a retailer for global brands, such as Geox, Clarks and Caterpillar. It also has a sportswear retail business, which has lower margins, but accounted for 37% of the revenues in the first half. More than 80% of the revenues in the sportswear business come from the sale of Nike and Adidas products.
Yesterday’s gains came amid a rebound across global markets after a coordinated move by the US Federal Reserve, the ECB and four other central banks to lower the pricing on the existing temporary US dollar liquidity swap arrangements.
The Hang Seng Index added 5.6% following a 4.2% gain in the Dow Jones index overnight. According to market watchers, a lot of hedge funds were caught on the wrong side of the rally and had to cover short position, which added further to the overall gains. Not too surprisingly, markets in Europe and the US saw a modest correction over night, suggesting that the move the previous day was a bit of a kneejerk reaction.
Even though it was open for only half-an-hour the Belle transaction was multiple times subscribed and attracted more than 40 investors, according to a source. However, the bookrunner is said to have had visibility on a good portion of the deal before launch. The majority of the demand came from long-only accounts but a lot of hedge funds also participated in the offering.
CDH, which held about 2.6% of Belle before yesterday’s sale, will still own about 150 million shares, or 1.8%, of the company. The private equity fund last sold share in Belle in 2008 when it contributed 100 million shares to a joint placement together with Belle chairman Y Tang and a Morgan Stanley private equity fund that raised $702 million. At that time, it fetched a price of HK$7.70 per share.
In early September a group of management shareholders sold $471 million worth of shares in Belle at a price of HK$15.28, which represented a 6% discount to the market price at the time. The sale, which was also arranged by Morgan Stanley, reduced the sellers’ combined stake in Belle to about 44.8% from 47.7%.
The share price fell after that transaction — as did the broader market — and hit a low of HK$11.70 in early October before starting to head higher again. Just like the overall market, the performance has been mixed, however, and the gains have not come in a straight line.
CDH was not the only investor taking advantage of the pickup in risk appetite yesterday. KCC Corp was also in the market with an offer to sell up to 1.115 million shares in Hyundai Motor Co at a price between W214,000 and W221,500. At the bottom of the range, the deal would raise W236.6 billion ($207 million).
The shares were offered at a tight discount of 3.4% at the bottom of the range, while the top end of the range was at a zero percent discount to yesterday’s close.
J.P. Morgan was the sole bookrunner.
