AviChina raises $147 million from follow-on

AviChina Industry & Technology Company, last night raised HK$1.14 billion ($147 million) from a fully-underwritten H-share placement, taking advantage of the positive momentum in its share price in the past 12 months to generate interest and overcome the still difficult equity markets in both China and Hong Kong.

The Chinese maker of airplanes, helicopters, aero components and instruments was able to attract more than 60 institutional investors to the offering and to fix the price above the bottom of the range, which isn't bad for a company that isn't covered by any of the major research houses. Also, this being a placement of new H-shares, the deal has a T+5 settlement, meaning participating investors will have to carry the market risk until next Monday.  

The deal was possibly helped by the fact that the company wasn't too greedy, but offered the shares at a decent discount between 7.7% and 11.6% over yesterday's closing price of HK$3.79.

In all, the deal comprised approximately 334.6 million H-shares, of which 305.4 million (91.3%) were new. The remainder were secondary shares that were allocated to the National Social Security Fund in connection with this deal and which the fund decided to sell straight away. The shares were offered in a range between HK$3.35 and HK$3.50 and priced slightly off the bottom at HK$3.40 for a 10.3% discount.

The double-digit discount was likely needed not just because of the longer-than-usual market risk that the investors were asked to take on, but because of the limited liquidity in the stock. The deal accounted for about 35 days' worth of trading volume, suggesting that it could be difficult for investors to offload the shares should the market turn against them. The offering also translated into 16.8% of the public float and 6.8% of the enlarged H-share capital overall.  

According to a source, there was some interest from existing shareholders, but the majority of the demand came from new investors. Some of them met with AviChina during a recent non-deal roadshow organised by BOC International, which was also the sole bookrunner and underwriter for this placement.

In all, the offering was more than three times covered with demand coming from blue-chip investors in all regions, including offshore US investors based in Asia (the deal was not available to onshore US investors). The demand was modest during the early part of the three-hour bookbuilding, but gathered pace once the message went out that the deal was covered and investors realised that the deal was working.

AviChina, which counts the European Aeronautic Defence and Space Company (EADS) as a strategic investor with a 5% stake, has started to attract the attention of fund managers and global investors as its share price has more than tripled in the past 12 months from HK$1.19 in March last year. It reached an all-time closing high of HK$4 on January 19. The company has also repositioned itself with a new management, which, according to the source, is keen to broaden the shareholder base. It obviously doesn't hurt either that China is very supportive of its home-grown aerospace and aviation industries. 

The company was established in April 2003 and listed in Hong Kong in October that same year. Aside from building its own Chinese aircraft it also collaborates with several world-leading aviation manufacturers, including Airbus - it has provided 20% of the investment into a final assembly line for A320 aircraft in Tianjin - and Brasil's Empresa Brasileira de Aeronáutica (Embraer) with which it has a joint venture to produce the turbofan regional jet ERJ145 with 30 to 50 seats.