C C Land upsizes placement to $327 million

The Western China-focused property developer is able to upsize the deal by 26%, but needs to pay a wider discount compared to other recent Hong Kong placements.

After a pause on Monday, placement activity in Hong Kong resumed yesterday with a $327 million follow-on for C C Land Holdings. As projected on Friday by some observers who noted that investors were experiencing fatigue after the deluge of deals across Asia in the past few weeks, the discount widened slightly compared with the most recent deal. At the same time, though, Hong Kong-listed C C Land was able to upsize the offering and price inside the wide end of the discount range, suggesting investors are still game for a good offer.

The packaging products maker-turned-property developer used the entire upsize option, increasing the deal size by 26% to 428 million shares, or 20% of the existing share capital, from a base deal of 342.2 million. The shares were offered through a top-up placement at a price between HK$5.79 and HK$6.12, which gave a discount of 7% to 12% versus Monday's close of HK$6.58. Citi and J.P. Morgan acted as joint bookrunners.

The final price was fixed in the bottom half at HK$5.92 for a discount of 10% and a full deal size of HK$2.53 billion ($327 million). The past six placements or sell-downs in Hong Kong have commanded discounts of between 5.5% and 8.8%.

Aside from possible investor fatigue, the Hong Kong market is also showing signs of becoming a bit more volatile again as we approach August, which is a traditional holiday month for fund managers -- although in recent years the slowdown in activity has been less pronounced that previously. Yesterday Hong Kong's Hang Seng Index fell 142 points in the morning before resuming the upward trend and finishing 1.8% higher at 20,624 points.

Sentiment for the C C Land deal likely benefitted from this as the offering was launched at about 10am Hong Kong time after the stock was suspended from trading and stayed open until about 5pm -- after the local market closed. According to sources, the deal was "comfortably subscribed" which was backed up by the fact that it was upsized in full and still priced above the bottom of the range. About 75% of the demand came from Asia, while European investors put in for 25%. The rest of the orders came from offshore US investors. All in all, about 80 accounts participated in the trade, including some Hong Kong tycoons, which is probably the best endorsement a Chinese property company can get. There was also decent participation by other high-net-worth individuals.

Some long-only investors who had previously held C C Land but sold their positions, bought back in through this placement, which is notable since the stock has surged more than five-fold this year. The fact that they still think it is worthwhile to get back in suggests they think the rally is not over yet.

Indeed, gray market trading of Chinese cement and building materials manufacturer BBMG Corporation ahead of its official debut today, suggests investors still have lots of money left to invest in what they consider to be good opportunities. According to figures provided by Philip Securities, the latest gray market price quoted for BBMG yesterday was HK$10.36 - a massive 62% above the IPO price of HK$6.38. The company raised $768 million from its IPO, which attracted $59 billion worth of retail orders to become the second most popular Hong Kong IPO ever. The deal was arranged by J.P. Morgan, Macquarie and UBS.

C C Land's gains have picked up pace over the past two weeks - the stock is up 40% since July 13 - after the company said it had acquired a 50% stake in a property site in Chengdu on which it will develop a villa/townhouse project. Analysts have noted that the project should enhance both the company's net asset value and its turnover. The company also has a low net gearing of only 8.2% (based on financials at the end of 2008) and therefore should have room to take advantage other NAV-enhancing land bank opportunities.

In a research note issued at the end of June, Citi said the management plans to accelerate the pace of its project construction to ensure it has adequate supply to meet the solid demand in the market. If market conditions warrant, it can also start construction on another 300,000-600,000 square metres of housing developments this year. The company's target is to double its sales to around 400,000sqm in 2010.

C C Land stands out among the Hong Kong-listed Chinese developers because it focuses on Western China, particularly the cities of Chongqing, Chengdu and Kunming. 

"Given C C Land's prime-location landbank in Chongqing, where we expect a stronger-than-national average GDP growth in 2009, we believe current stock valuations represent a good long-term investment for this prime asset focusing on the Western China property market," the Citi report said.

Three years ago, the company was known as Qualipak and was involved in the manufacturing and trading of packaging products and luggage as well as Treasury investments. It changed tack in November 2006 when chairman Cheung Chung Kiu injected his interests in a property company into the Hong Kong-listed unit and made property development the core business of the group. Following the latest acquisition, C C Land has a total land bank of 13 million sqm, or which 9.3 milion sqm is attributable to the company.

The chairman will see his stake diluted to 48.4% following this deal.

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