Standard Chartered Financial Holdings defied tumbling markets in Europe to raise $211.5 million in a block trade in China Cinda Asset Management on Wednesday night in Hong Kong.
European stocks pulled back after Greece and its creditors rejected each other's revised plans for a debt deal. A proposal from Prime Minister Alexis Tsipras was turned down by Greece's creditors, who in turn handed the government new terms for a deal to unlock bailout funds.
In Asia, the backdrop was slightly more positive, with the Hang Seng Composite Index rising 1.2% this week, following a 0.38% decline last week. Shares in the distressed debt manager have risen 25.1% so far this year.
The deal launched on Wednesday evening in Hong Kong under the joint leads of Goldman Sachs and Bank of America Merrill Lynch. On offer were 360 million shares — all secondary — at a price range of HK$4.55 to HK$4.63 per unit, according to a term sheet seen by FinanceAsia. The range represents a 2.1% to 3.8% discount to the June 24 closing price of HK$4.73 per share. The 360 million shares on offer represent 3.1% of the total outstanding H-shares.
Shares priced at HK$4.55 per share, the very bottom of the range and a 3.8% discount to the last close, likely a result of the ongoing woes in Europe, according to a source close to the deal. The final book was multiple times covered and was very top-heavy — the top ten allocations taking up more than two-thirds of the deal.
Standard Chartered previously owned 458 million shares in China Cinda. After the share sale, it now owns about 98 million shares.
Shareholders in China Cinda have been keen to cash in on some of the distressed manager’s gains this year. On April 9, Citic Capital Financial took advantage of a 20% two-day rise in China Cinda’s shares and raised $140 million in a clean-up trade under the leads of CLSA and Morgan Stanley. Shares priced in the middle of the indicative range at HK$4.75 per unit, a 2.5% discount to the last close.
A few days after Citic’s sale, UBS sought to sell 490 million shares in China Cinda at HK$4.72 to HK$4.87 per unit, a 2% to 5% discount to the last closing price. However, a lack of investor interest depleted the deal size to 400 million shares, with shares finally pricing at HK$4.75 per unit, towards the bottom half of the range, on April 13.
The distressed debt manager reported strong results last year, with revenue of Rmb59.8 billion ($9.63 billion), a 41% increase year-on-year. Net profit totalled Rmb11.9 billion, representing 32% year-on-year growth. China Cinda is currently trading at 8.85 times its 2015 earnings.
The group’s non-performing loans growth was explosive. SWS Research, a subsidiary of Shenwan Hongyuan Securities in Shanghai, noted that China Cinda’s newly acquired traditional and restructuring distressed assets grew by 150% and 55% respectively. Economic conditions have offered firms such as Cinda opportunities to acquire distressed assets at discount.
However, a drop in asset prices has led to slipping yields on Cinda’s distressed assets. SWS Research notes that its yield on traditional distressed assets declined from 19.3% to 18.6% and its yield on restructuring distressed assets declined from 13.5% to 12.2%.
However, given its leverage ratio is still at 5.3 times, below the regulator’s required 8 times, SWS Research argues China Cinda should still benefit from “a soft landing scenario, as distressed assets supply will continue to increase while credit costs could be manageable.”
The group also remains positive on its property portfolio. Within China Cinda’s restructured distressed assets portfolio, real estate assets accounted for 60% in 2014, leaving the company’s asset quality and disposal returns very sensitive to any changes in the property market.
“Given favourable monetary policy, supportive industry policies and possible fundamental recovery, we believe the sector’s rising outlook will translate to improving asset quality and disposal returns for Cinda,” SWS Research said.
