The shareholder, who wasnÆt disclosed, initially offered 175 million shares, but after seeing that there was enough demand, decided to sell the remaining 85 million as well, bringing the total deal size to 260 million shares. UBS was the sole bookrunner.
A source close to the offering says the deal was about two times covered at the enlarged size. However, the price was fixed below the mid-point of the indicated range at HK$5.78 for a discount of 6% versus yesterdayÆs close of HK$6.15. This suggests investors remain sensitive about price even though the Hong Kong stockmarket has now surged 45% since the lows on August 17. Or perhaps because of it.
The Hang Seng Index added another 3.9%, or 1,057 points, yesterday to a new record close of 28,199 points û the third straight session that it has broken new ground.
Citic ResourcesÆ share price has also rallied almost 400% so far this year supported by the companyÆs acquisition of a 47.3% stake in an oil field in Kazakhstan from its parent China International Trust & Investment Corp.
Originally a provider of various natural resources and commodities, including aluminium and coal, Citic Resources has shifted its focus towards upstream oil exploration and production through a series of acquisitions in the past couple of years. The $950 million investment in Kazakhstan has made it ChinaÆs fourth largest oil company after PetroChina, Sinopec and CNOOC.
Still, yesterdayÆs close of HK$6.15 was only 10 HK cents below the 7.5-year closing high of HK$6.25 reached on Friday, making even the discounted price perhaps a bit steep for some investors.
One may also wonder why the shareholder is exiting the stock now as the company has only just announced (on Friday) that it has exercised an option to buy a 90% stake in a company that holds the exploration and development rights for an oil field in the Bohai Basin in Liaoning Province at a price of $148 million. As of June 30, the field was estimated to have total recoverable proved, probable and possible oil reserves of about 63.5 million barrels which, according to one analyst, would add 60% to Citic ResourcesÆ scheduled peak production of 45,000 barrels per day.
One possibility is that the seller feels most of that news is already in the price as it was widely expected that Citic Resources would exercise the option. On the other hand, the recent strong gains û the stock has rallied 38% in the past six weeks - would also make this a tempting time to take profits. Since the seller owned less than 5% of the company, the shareholding is likely to have been a financial investment.
The shares, which represented about 4.9% of the existing share capital and approximately eight days trading volume, were offered at a price between HK$5.72 and HK$5.90, or at a 4% to 7% discount to yesterdayÆs close.
The final discount is not out of line with other placements seen in Hong Kong recently as investors have wanted some additional reassurance because of the high volatility in the market. The six share placements of size in Hong Kong-listed companies over the past two weeks have priced at discounts between 3.6% and 9%. Aside from Shun Tak Holdings, which achieved 3.6%, no other deal has priced below a 5% discount and the average is 6.4%.
Citi, which has a target price of HK$4.80 on the Citic Resources stock, says in a research note published on September 24, that execution is the key downside risk given that the company is ônew to the oil business and yet has an aggressive growth strategyö.
ôOne major upside risk is an earlier-than-expected announcement of more acquisitions,ö the note says.
¬ Haymarket Media Limited. All rights reserved.
