The shareholder was a company owned by China PowerÆs vice-chairman Lai Leong and a former executive director, which, prior to the sell-down on Monday night, owned 1 billion shares in China Power. CLSA arranged the deal, which is the first placement of size in a Hong Kong-listed company since coking coal processor Fushan International Energy Group raised $252 million three weeks ago.
China Power focuses on developing projects within wind power, hydropower, and biomass. It is 28.4% owned by China Power Investment, while China National Offshore Oil Corp (CNOOC) has a 12.7% stake. Lai is described as the entrepreneur who helped bring the company together. He is now subject to a six-month lock up.
The base deal consisted of 300 million shares, and an upsize option brought in another 100 million. The shares were offered at a price between HK$0.89 and HK$0.95, representing a discount of between 4% and 10% to MondayÆs closing price of HK$0.99. The final price was set at the bottom of that range, at HK$0.89, giving the maximum discount. A source close to the offer said the deal was ôcomfortablyö subscribed and more than half the order book was covered at the high end of the range. The final price was brought down by price sensitivity among other investors.
ôItÆs a really tough market and you need to know who the potential buyers are,ö says the source. The book consisted of around 15 accounts, almost exclusively made out of long-only funds. While most of the investors were new to the company, two investors were beefing up their pre-existing holdings.
The majority of the demand, around 80%, was generated from Asia, with the remaining 20% came from Europe. Although the book was left open long enough for US investors to get involved, it was thought that the deal size was too small to attract attention.
For such a small deal, the books were open for a protracted period û from 5.15pm Hong Kong time on Monday through to 2am Tuesday morning. It was said that it could have closed at around 10.30pm, but was kept open for potential interest out of the US.
The deep discount may have been necessary since the sale came on the back of a 4.2% gain in China PowerÆs share price on Monday, which followed a week of incremental gains that amounted to 5.6%. The price may be nowhere near its high of HK$1.57 in late October last year; but it has picked up from the low of HK$0.59 on April 1. The share price fell 9.1% yesterday in the wake of the transaction.
The shares on offer represented nine days of trading volume, based on an average daily turnover of 46 million shares. It also accounted for 5.7% of the outstanding share capital and will reduce the stake held by Wealth Success to 8.56% from 14.24%, according to a statement made to the Hong Kong stock exchange. Vice-chairman Lai owns 48% of Wealth Success, while the rest is owned by the former director.
Apart from being the first placement for some time, the deal stood out due to the renewable energy sector being a sought-after theme. Whether or not the outcome of China PowerÆs placement will encourage other deals in the pipeline to go ahead is uncertain, but there is at least one Chinese solar power company looking to do an IPO in the near-term.
The source said that there are already a lot of choices available in renewables, and investors might be more willing to invest in a pre-existings share rather than take a risk with a newer company that may still have to put up the extremely high capital expenditure that the sector typically requires.
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