Belle insiders raise $471 million from share sale

The block trade is priced at a 6% discount and will reduce the combined stake of the management and the chairman to about 44.8%.
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A model sporting shoes by Tata, one of Belle International's own brands
<div style="text-align: left;"> A model sporting shoes by Tata, one of Belle International's own brands </div>

A block of 240 million shares in Hong Kong-listed Belle International Holdings changed hands last night as a group of management shareholders took advantage of a share price gain after a strong first-half earnings to slightly trim their stake.

The deal raised HK$3.67 billion ($471 million) and will reduce the sellers’ combined stake in the Chinese shoe manufacturer/retailer and sportswear retailer to about 44.8% from 47.7%. The fact that they will still own a controlling stake should limit the potential negative impact from the sale. And to further show their commitment to the company, the sellers have agreed to a 180-day lockup.

This is also the first time that they are selling down their combined stake since December 2009, even though the share price has almost doubled since then. The stock has gained 162% since its highly popular $1.1 billion IPO in May 2007.

Meanwhile, one of the three entities that offered shares last night also decided to sell fewer shares than initially planned, which led to a slightly smaller overall deal size than that flagged in the first term sheets to hit the market.

The final offer, which was launched at about 6.30pm yesterday, comprised 240 million shares, or 2.85% of the outstanding share capital. It accounted for about 17 days’ worth of trading volume. The shares were offered at a price between HK$15.28 and HK$15.70, which translated into a discount of 3.4% to 6% versus yesterday’s close of HK$16.26.

According to sources, the deal was backed by some anchor orders, which gave the bookbuilding good momentum from the start. But there were also a few price sensitive orders — it was unclear whether they were the same key orders — and the final price was fixed at the bottom of the range for the maximum 6% discount.

That did not look particularly excessive when considering that Belle’s share price gained 4.1% yesterday. It is also up 8.9% since the company posted a positive earnings report on August 25. The report, which showed a 24.6% year-on-year increase in revenues in the first six months to Rmb13.89 billion ($2.2 billion) and a 29% improvement in net profit to Rmb2 billion, has prompted some analysts to revise up their target prices on the stock.

When the management shareholders last sold shares in December 2009, the deal was priced at a 7.6% discount — although that may have been partly to compensate for a year-end decline in liquidity (the block hit the market on December 16). At that time, they sold 253.25 million shares at HK$9.20 apiece, raising a total of $301 million.

The share price is currently about 7.3% below the record closing high of HK$17.54 that it hit on July 28, before the downturn in global equity markets that lasted pretty much throughout the month of August.

Even so, the deal attracted good demand, particularly from long-only investors in the US. And, according to one source, more than 40 accounts participated in the transaction. The books closed in about two hours.

A key reason for the optimism is the continuing interest in the consumer sector and, when it comes to China, Belle is one of the largest and most liquid consumer names available. The company manufactures and sells popular women’s shoe brands like Belle, Staccato, Millie’s, Joy & Peace and Mirabell and also acts as a retailer for global brands, such as Geox, Clarks and Caterpillar.

In the first half of 2011, the company opened a net 841 new footwear outlets in China as it grew its newer brands at a fast pace and continued to expand its core existing brands into third-tier cities and suburban areas of major cities. The pace of expansion was faster than the target set at the beginning of the year.

In addition to the shoe business, Belle also has a sportswear retail business, which has lower margins, but accounted for 37% of the revenues in the first half. More than 80% of the revenues in the sportswear business come from the sale of Nike and Adidas products, but it also acts as a distributor of other brands like Kappa, Puma, Reebok, and Li Ning.

The placement also had a nice tailwind as European markets were up strongly during the bookbuilding. The FTSE 100 finished 3.1% higher and, in Germany, the DAX index gained more than 4%. The buying continued in the US with the Dow Jones index adding 2.5% over night and Nasdaq up 3%.

Earlier in the day, the Hang Seng Index gained 1.7%.

Many investors are also sitting on a lot of cash following last month’s turbulence in global equity markets and are said to be keen to increase their exposure again so that they don’t risk missing out on the next leg up. Discounted placements are a good way to do that.

The Belle block trade was arranged by Credit Suisse and Morgan Stanley, which were also joint bookrunners for the IPO four years ago.

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