Anglo American cuts ties with Shenhua Energy

The diversified mining company sells its IPO stake in the Chinese coal miner through a $708 million block trade.
Diversified mining company Anglo American last night sold all its shares in China Shenhua Energy in a HK$5.52 billlion ($708 million) block trade that offered fresh evidence that investors are becoming increasingly willing to part with their cash. The deal was the largest overnight block trade in the Hong Kong market since late October when Sun Hung Kai Properties sold $1.41 billion worth of new shares, and the fact that the discount was still no wider than what has been achieved on other significantly smaller placements in recent months should be encouraging.

The discount was kept low as there were several banks bidding for this deal û some say as many as six û making it one of the first really competitive blocks over the past couple of months. The mandate was won by UBS, who offered the deal to the market at a discount of 4% to 5.95% versus yesterdayÆs close HK$37.70. This translated into an actual price of HK$35.46 to HK$36.19.

In line with many other blocks this year, the price was fixed at the bottom of the range for the maximum 5.95% discount. So while investors may be more keen to buy, they still want to get as much downside protection as possible. According to a source, the offering attracted about 40 investors from across Asia, Europe and the US, including some existing shareholders who took the opportunity to add to their positions. There was no information on how well covered the book was.

The deal came on the back of a 13% gain in Shenhua EnergyÆs share price during the first four days last week and, although it gave up some of that in the past two days when the stock fell a combined 2.3%, the current uptrend has now been in place for 4.5 weeks and has seen the share price climb by 27%. However, the Chinese coal miner is still trading 35% below its record high close of HK$57.85 from October last year.

This is unlikely to worry Anglo American that much. The mining company, which has its roots in South Africa but is now active around the globe, bought into Shenhua at the time of its IPO in June 2005, paying a total of $150 million or HK$7.50 per share. Until now it hasnÆt sold anything. This means it will have made a profit of about $558 million before expenses, representing a healthy return of about 470%.

Anglo American has been disposing of a range of non-core assets over the past couple of years to focus on the mining of platinum, diamonds, coal, base and ferrous metals as well as industrial minerals and it wouldnÆt have come as a huge surprise that it decided to liquidate its minority stake in Shenhua. Last year, Anglo American formed a partnership with China Development Bank to identify and develop mining projects in China, Africa and elsewhere, indicating it wants to become a more active player in China.

The placement comprised 155.612 million shares, which is equal to 4.58% of Shenhua EnergyÆs H-share capital and 4.7 days worth of trading volume.

This was the second placement in Shenhua in just over a week after an undisclosed seller raised $87 million on April 17. The Citi-led deal was priced at a discount of 2.6% versus the HK$35 close at the time, which was the tightest discount for a Hong Kong placement this year except for a small $40 million sell-down in Wharf that was done at a fixed 1.6% discount. The share price dipped close to the placement price the day after that deal, but on the second day it was back at its pre-placement level and since then it has gained another 7.7% which should have been encouraging for investors pondering whether to participate in last nightÆs deal.

ShenhuaÆs first quarter earnings released last Thursday confirmed that the company continues to benefit from strong demand for coal in the China. Revenues increased by 28.7% to Rmb23.8 billion ($3.4 billion), while the net profit was up 37.7% to Rmb6.8 billion, indicating improved margins.
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