Beijing airport operator pockets $131 million from H-share sale

Transaction fuels speculation about an asset injection by Beijing Capital's parent.
Beijing Capital International Airport has raised HK$1.02 billion ($131 million) from the sale of new H-shares, sparking immediate speculation that the company is getting close to aquiring all, or part of, a third terminal and runway at the airport currently being built by its parent.

However, sources said last night the placement was not done with any acquisitions in mind.

ôIt will take a lot more money to buy into terminal three and this fund raising is not linked to that û it is for general working capital,ö says a source familiar with the deal. ôBut there is speculation about an asset injection before the Olympics and since investors expect this will be a good deal they figure they might as well get in now.ö

About 60 investors submitted orders for the UBS-led block trade, which closed once the books reached just under two times covered. Demand was long-only focused and although the order books were kept open for a while during the Hong Kong evening to allow some US accounts to participate, Asian investors walked away with about 60% of the deal.

The airport operator offered 200 million H-shares, or 20% of its H-share capital, which is the maximum a Hong Kong company is allowed to sell in any given year without special approval from the regulators. The price was fixed at HK$5.10, or towards the bottom of the HK$5.05 to HK$5.26 range, for a 5% discount to yesterdayÆs close of HK$5.37.

The low-end pricing suggested that while investors were happy for an opportunity to buy this fairly illiquid stock, they werenÆt willing to do so at any price. The fact that the deal û because it comprises primary H-shares û wonÆt settle for another five trading days was likely to have influenced the price as investors will be exposed to both liquidity and market risk during that time.

Accounting for 40-days trading volume, the placement was also quite chunky which would have put further downward pressure on the price, as would the fact that the share price has rallied 51% already this year. The stock is currently trading close to its all-time closing high of HK$5.49 which it revisited as recently as last Friday.

One source notes that most orders came in around the 5% discount level, compared with the marketed discount range of 2.05% and 5.96%.

According to market watchers, the high share price and the market risks related to the T+5 settlement arrangement were offset by the supportive macro economic story, including strong passenger traffic and an expected pickup in demand for traveling and goods transport in the run up to the Beijing Olympics.

Data released last week showed that 31.7 million passengers traveled through Beijing airport in the first seven months this year, up 20% from the same period in 2005. Cargo traffic increased by 18.4% to 581,947 tonnes.

In response to the expected increase in demand, the parent company of Beijing Capital is spending Rmb25 billion to construct a third terminal and runway at the busy airport which will almost double its capacity to 60 million passengers per year ahead of the 2008 Olympics.

Beijing Capital has said it will buy at least a stake in the terminal, but has yet to decide on the size of its investment.

Not everyone is thrilled about the future prospects though. Last week Credit Suisse cut its recommendation on the stock to ôunderperformö from ôneutralö, while noting that the current high share price seems to have factored in the strong expectations of traffic growth but not much of the investment concerns related to a new passenger terminal.

Last time international investors got a chance to buy Beijing Capital's shares in bulk was in February 2005 when Vinci Airports sold its entire 9.7% stake in the company at HK$3.15, or at a 3.17% discount to the market price at the time.

Beijing Capital's share sale was the fourth Hong Kong placement of more than $100 million in three trading days as managements and existing shareholders alike are attempting to cash in on the current high share prices.

Last Thurday, a combined $1.07 billion worth of stock in Esprit Holdings, Hopson Development Holdings and Guangzhou R&F Properties, changed hands at discounts rainging from 4.2% to 10.6%.
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