A 2.2% gain in the Hang Seng Index yesterday — the biggest movement in an upward streak that has now lasted for six straight days — triggered a couple of block trades in Hong Kong-listed companies last night. And investors responded well to both, even though the pricing was tight.
An undisclosed institutional shareholder offloaded HK$2.4 billion ($308 million) worth of shares in Macau casino operator Sands China, while NWS Financial Management Services became the first cornerstone investor to sell its stake in AIA Group. The deal raised HK$541.2 million ($70 million) and is likely to increase the speculation that some of the other six cornerstones might also decide to sell. The cornerstone lock-up ended on April 28.
AIA has gained 39.5% since it listed in Hong Kong at the end of October last year and yesterday’s close was equal to the record high that the stock reached on May 9, making it a good time to sell for someone who never intended to hold the stock for the long-term. AIA is also about to be included into the Hang Seng Index from June 7, which is creating a natural demand for the shares.
NWS offered to sell approximately 19.7 million shares at a price between HK$27.31 and HK$27.45. At the bottom this equalled a discount of just 0.5% versus yesterday’s close, while the top of the range was flat to yesterday’s closing price. This was possible because, while the deal equalled NWS’s entire holdings in AIA, it accounted for less than 0.2% of the pan-Asian insurer’s outstanding share capital and just half a day’s trading volume.
The HSBC-led deal was offered on a first-come, first-serve basis and the interest from long-only investors and index funds to increase their exposure meant there was very little price sensitivity. This allowed the price to be fixed at the top of the range for a 0% discount.
According to a source, the entire deal was bought by fewer than 10 investors and was completed in a couple of hours.
NWS Financial is wholly owned by infrastructure and services company NWS Holdings, which is part of the New World Development group and engages in road, energy, water, ports and logistics projects. It also operates bus and ferry services in Hong Kong and manages the Hong Kong Convention and Exhibition Centre. It invested $50 million in AIA’s IPO as part of a total cornerstone investment of $1.92 billion. The largest chunk of that went to the Kuwait Investment Authority, which bought $1 billion worth of shares.
Hang Seng Indexes announced on May 12 that AIA, which raised $20.5 billion from its Hong Kong IPO and now has a market capitalisation of about $42.5 billion, and Hengan International, a manufacturer of tissues and other hygiene products, will both be included in its blue-chip Hang Seng Index from June 7. They will replace handset manufacturer Foxconn International and will bring the total number of stocks in the index to 46.
AIA will be the seventh-biggest stock in the index with a weighting of 3.59%, according to the announcement.
Sands China
While significantly larger in absolute value terms, the block in Sands China was also quite small in relation to the overall size of the company. It accounted for about 1.5% of the issued share capital and some 10-12 trading days.
The deal comprised 120 million shares, which were initially offered at a fixed price of HK$19.50 apiece or at a 3.2% discount versus yesterday’s close of HK$20.15. However, strong demand allowed the price to be increased to HK$20, which reduced the discount to a mere 0.7%. It also increased the total deal size to about $308 million from $301 million at launch.
The share price fell 2.4% yesterday and Sands China, which is controlled by Sheldon Adelson’s Las Vegas Sands Corp, has also underperformed its Macau peers recently, which may explain why investors were ok to tighten the discount.
That said, it is unusual for a price to be increased on a fixed-price deal and the move suggests that Credit Suisse as the sole bookrunner may have been taken somewhat aback by the level of interest in the stock.
According to a source, some investors who had been going short of Sands China and Wynn Macau to hedge their investments in MGM China’s $1.5 billion IPO that priced at the end of last week are starting to unwind those trades to keep a more neutral or even net-long position ahead of MGM China’s trading debut on Friday. There is also a certain amount of anticipation ahead of today’s announcement by the Macau government of the gambling revenues generated in the city in the past month. In April gambling revenues rose 45% from the same month last year to a record 20.51 billion Macau patacas ($2.5 billion).
There has been a lot of focus on the Macau gaming industry in recent weeks, because of the record revenues and MGM China’s IPO, which has led to a lot of movement both in share prices and between the various stocks in the sector. During MGM China’s seven-day roadshow Wynn Macau was up 5.3%, Galaxy Entertainment gained 15.4%, SJM rose 9.1% and Melco Crown, which is listed in the US, added 9.4%. Sands China, however, added a modest 1%.
And clearly not everyone is convinced that the pressure on Sands China is coming to an end, as the short-selling still accounted for about 39% of the total trading volume in the stock yesterday.
The buyers of last night’s block trade included existing shareholders who chose to top up their holdings, as well long-only investors and hedge funds. While a discount of 0.7% wouldn’t normally appeal to hedge funds, some of them were said to be using the deal as an opportunity to adjust their positions before MGM China starts to trade.
The seller of the block wasn’t disclosed, but sources said it was an investor that owns more than 5% of the company and consequently will need to report the trade to the stock exchange in a few days’ time.
Harum Energy
The two blocks last night follow another block trade completed last Friday evening when the Barki family sold a 10% stake in Indonesian coal miner Harum Energy. The deal, which was arranged by Deutsche Bank and Macquarie, was priced at the bottom of the offering range for a total deal size of Rp2.44 trillion ($285 million) and a discount of 5.2% versus the day’s closing price of Rp9,550.
More than 60% of that deal went to long-only investors, including one account that bought more than one-third of the deal, which has helped support the stock in the secondary market. Since the transaction, the share price has fallen 4.2%, but yesterday’s close of Rp9,150 is still above the Rp9,050 placement price.
The interest in the stock was helped by the fact that many international investors have missed the recovery in the Indonesian stock market during the past couple of months and are looking for an opportunity to get back into the market. And, with thermal coal remaining a sought after commodity, Harum is not a bad name to have in one’s portfolio. Its share price has rallied 76% since its IPO in September last year.
The sell-down reduced the Barki family’s stake in the company to just under 70% from 79.7%. The family owns the shares through an investment vehicle called Karunia Bara Perkasa, which will be subject to a 90-day lock-up on the rest of its holdings.
