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Carlyle Group has raised a further HK$7.7 billion ($989 million) from the sale of shares in China Pacific Insurance (Group) Co (CPIC) — its third sell-down in just seven months.
The deal, which was completed late on Tuesday night Hong Kong time, came a couple of weeks after Carlyle’s previous lockup expired and shortly before the start of a month-long share sale blackout period related to the company’s upcoming six-month earnings release.
The US private equity investor wasn’t able to realise quite as much money for each share as it did in its previous sale in January, but by selling now it avoided clashing with an extensive pipeline of financial sector paper expected from September onwards. And, as its remaining stake will be locked up for just three months, it has also given itself enough time to sell again before the end of the year. Market watchers say they expect Carlyle to divest its entire stake in CPIC by year-end.
However, Carlyle obviously wanted to get as high a price as possible and there were suggestions in the market yesterday that the deal was a bit too rich and didn’t find enough buyers. One indication of this, some argued, was the 4.2% drop in the share price yesterday, which left the stock almost 1% below the placement price. But sources close to the placement said it was covered when it closed after about four-and-a-half hours of bookbuilding and added that some investors were in fact relieved that the deal hadn’t come at an even tighter discount, and also that it wasn’t bigger.
In January, Carlyle raised $1.79 billion from the sale of 415.2 million shares that was priced at a 0% discount to the latest close, or at HK$33.45 per share. However, that deal had two significant anchor investors — Allianz and Fairholme Capital — who together bought 82.5% and helped keep the price high.
Tuesday’s placement comprised 249.12 million shares, or about 36% of Carlyle’s remaining stake. This equalled 10.8% of CPIC’s H-share capital and 2.9% of its total share capital including the Shanghai-listed A-shares. The shares were offered in a range between HK$30.90 and HK$31.40, resulting in a discount of 1.7% to 3.3% versus the day’s close of HK$31.95.
They were priced at the bottom of the range for the maximum 3.3% discount.
The buyers included a mixture of long-only investors and hedge funds, but with a bias towards the former. The mix also included both new and existing investors, as well as some global funds focusing specifically on the financial industry. The US and Europe were both well represented. In all, the deal was said to have attracted more than 60 accounts.
This time, the bookrunners didn’t have time to wall-cross any investors beforehand and there were no anchor investors known to the market at the time of launch. However, the deal was widely expected and the banks involved should have had a good grasp on where the buyers were. The pending sale had also acted as an overhang on the stock, meaning there was room in the market to absorb the shares.
After coming under a lot of selling pressure in early July, the stock had rebounded by about 6.3% since Carlyle’s lockup expired on July 12 without there being an immediate transaction, but it had continued to underperform its sector peers and many investors still viewed the valuation as relatively attractive. Indeed, the average target price among the analysts who cover the stock, according to Bloomberg, is HK$39.74, which suggests 24% upside versus the pre-placement price. Out of 35 analysts, 29 have a buy on the stock.
However, this was somewhat offset by the challenging market backdrop, including the inflation outlook in China, the lack of a solution to the debt ceiling problems in the US and also the large amount of financial sector equity issuance expected to hit the market in the next few months. The overhang on CPIC will not go away either since Carlyle still owns about 443.1 million shares, which account for 19.2% of the H-share capital and 5.1% of the company as a while. Based on yesterday’s closing price, the remaining stake is valued at about $1.7 billion.
The deal was led by Deutsche Bank, Goldman Sachs and Morgan Stanley.
Aside from the January sell-down, Carlyle also sold $864 million of stock through a privately placed transaction that was announced on December 29 last year — about one week after Carlyle’s 12-month lockup from the Hong Kong IPO expired. The December deal was arranged by UBS, while Goldman Sachs was the sole bookrunner on the block trade in January.
Carlyle initially invested in CPIC’s life insurance unit almost five years ago, but the investment was converted into shares in the parent company before it went public. CPIC listed in Shanghai in December 2007 and in Hong Kong two years later. Before it started selling down in December last year, Carlyle held 57.2% of the H-share capital.
