Two equity placements that were both linked to acquisitions were in the market yesterday, raising a combined $491 million. But while they both achieved their funding targets, they had a completely different feel to them.
The smaller of the two deals was offered by Ascott Residence Trust, a Singapore-listed real estate investment trust that focuses primarily on serviced apartments and is backed by blue-chip property developer CapitaLand. The company was looking to raise cash to partially fund a S$1.4 billion ($1 billion) acquisition of 28 new serviced residence properties in Singapore, Vietnam and Europe and the deal was preceded by a roadshow to familiarise investors with the new assets.
To ensure it would be able to raise enough money without overwhelming the market and also to give existing unitholders a proper chance to take part, the total fundraising was split into two parts -- a placement targeted at institutional investors and a non renounceable preferential offering to existing unitholders. Increasing its chances of success even further, it announced at launch that CapitaLand would take up its pro rata share of both the preferential offering and the placement so as to maintain its stake in the trust at 47.74%.
As a result, the fundraising that needed to be absorbed by the market amounted to only S$233.8 million ($174 million), while Ascott will get $393 million of fresh capital. The placement was launched at around 7pm (Hong Kong time) on Monday with a message to investors that the book would remain open until yesterday afternoon. The $55 million one-for-10 preferential offer will be open from September 24 to 30.
By comparison, Hong Kong-listed China Resources Gas, a distributor of natural gas, petroleum gas and liquefied petroleum gas (LPG) in China, and its bookrunners set themselves a difficult task as they launched a top-up placement equal to about 170 days’ worth of trading volume at a discount of just 3.4% to 5.2% versus the latest close. Adding to the challenge, the deal was launched after 11pm Hong Kong time on Monday just after the company announced a HK$2 billion ($256 million) asset injection from its parent company. This meant investors had to get their heads around not just the fund-raising, but the implications of the acquisition of numerous city gas distribution businesses as well.
The money raised will not be used to fund the asset injection per se, as this will be covered through the issuance of new shares to the parent company, but the price at which those shares will be issued will be the same as the placement price. That explains why CR Gas decided to launch the placement immediately after announcing the acquisition, which otherwise seemed to make little sense. Indeed, the acquisition also complicated the issue for the banks bidding for the transaction and it was perhaps not surprising that the most aggressive bid came from a bank that had already been involved in an earlier group restructuring that left it with shares in the company. This was true for both Credit Suisse and Morgan Stanley, but the bank that clinched this mandate on a hard underwriting basis was Credit Suisse.
Despite the challenges, the CR Gas deal was fully covered by external accounts after remaining open throughout yesterday’s trading session (the stock was suspended). The price was fixed at the bottom of the indicated range, and the 22% upsize option wasn’t exercised. Based on the final price, CR Gas raised HK$2.47 billion ($317 million). These funds, the company said, will be used for other potential acquisitions of gas distribution businesses in China and for general working capital requirements.
The deal comprised 230 million new shares, or 14% of the enlarged share capital, which were offered at a price between HK$10.75 and HK$10.95. The final price of HK$10.75 resulted in a discount of 5.2% -- well below the discount in the previous two placements in April and June last year when Credit Suisse and Morgan Stanley divested shares that they had bought on a temporary basis in 2008 to help the company increase its free-float. Those two placements were completed at discounts of 19.3% and 21.5% respectively.
Hedge funds showed little interest in the deal, given the tight discount and the illiquid nature of the story, and according to a source, the deal was primarily bought by Hong Kong- and China-focused funds that were already familiar with the company, including some existing shareholders.
One incentive to participate in the trade would have been that the parent company supposedly has another 35 gas assets that could be injected into the Hong Kong-listed unit. The acquisition announced on Monday still needs to be approved by existing shareholders.
As could have been expected, the Ascott transaction, which was also arranged by Credit Suisse, this time together with DBS, went rather more smoothly, even if it too was priced towards the low end of the price range. The new units were offered between S$1.07 and S$1.13, which translated into a discount of 1.7% to 7.0%. The final price was fixed at S$1.08 for a 6.1% discount versus Monday’s close of S$1.15.
One reason for the low end pricing may have been a delayed settlement (not until September 22), which is due to it needing to correspond with some element of the preferential offer. Either way, investors needed an additional incentive to compensate for the additional risk, said a source.
However, there was no lack of the demand with the deal three times covered. Compared with CR Gas, this deal attracted more UK and offshore US funds, including some existing shareholders.
The deal closed at around 4.30pm yesterday after this stock too had been suspended from trading all day.