The controlling shareholders of Taiwan oil refiner Formosa Petrochemical have raised NT$10.52 billion ($350 million) from the sale of a small portion of their combined stake in the company.
The transaction was completed in the early hours of Friday morning Hong Kong time following a lengthy discussion about the final deal size. In the end, it was partially upsized but priced at the bottom of the indicated range for a 5% discount to Thursday’s close.
The three sellers, which are all part of the Formosa Plastics Group, offered 129.6 million shares, with an option to sell a further 25.2 million shares in case of strong demand. It was able to exercise slightly less than a third of that, resulting in a 5.4% increase of the deal size to 136.565 million shares, or about 1.4% of the share capital.
Technically, there was enough demand to upsize in full – investors were told during the Hong Kong evening that the deal was well oversubscribed – but, as is often the case, the quality was not consistent throughout the order book and capping the deal size below the maximum should help support the stock in the aftermarket.
At $350 million, it is still the second largest block trade this year after China Investment Corp’s $402 million sell-down in Hong Kong-listed solar power company GCL-Poly Energy. And, while the deal accounts for only a small portion of the market capitalisation, it is a big liquidity event since Formosa Petrochemical has a turnover of no more than $3 million to $4 million on an average day.
The shares were marketed at a price between NT$77 and NT$79 apiece, which represented a discount of 2.6% to 5.0% versus Thursday’s close of NT$81.10. The stock has traded pretty much in a NT$15 range between NT$70 and NT$85 in the past 12 months and the fact that it is currently close to the top end of that range and has been trending gradually upwards since late November may have made investors more price sensitive.
Also, only two of the 23 analysts who cover the company, according to Bloomberg data, have a “buy” recommendation on the stock. The others are split pretty much evenly on whether to hold or sell.
As noted, the final price was fixed at the bottom of the range for the maximum 5% discount.
Local funds contributed about half of the overall demand, while the rest came from a mixture of regional and global long-only funds, hedge funds and even some sovereign wealth funds, sources said. Quite a few US accounts participated, although most of them had signed up during an earlier wall-crossing exercise. According to the sources, the deal was more than half-covered at launch.
In all, the deal attracted close to 50 investors.
The sellers – Formosa Plastics Corp, Formosa Chemicals & Fibre Corp and Nan Ya Plastics Corp – owned approximately 78% of Formosa Petrochemical before this transaction and, given that the deal accounts for less than 2% of the share capital, it will have no discernible impact on their overall holdings.
However, it will help increase the free-float, which is currently only 11%. Indeed, looked at in that sense, the transaction accounted for 13% of the existing free-float, which is big enough to make a difference.
Formosa Petrochemical is the only privately owned oil refinery in Taiwan and the country’s second largest producer of petrol and gasoil. It also makes naphtha, fuel oil, jet fuel, kerosene and liquefied petroleum gas (LPG) and, according to its website, it is Taiwan’s largest producer of olefins products, which it sells mostly to other companies within the Formosa Group.
In the nine months to September last year it posted a 5.3% increase in revenues year-on-year to NT$684 billion and transformed a slight operating loss in the first nine months of 2012 into a net profit of NT$18 billion.
Bank of America Merrill Lynch and UBS where joint bookrunner for the transaction.
