CCB share block sold 6 months after IPO

$167 million transaction faces extra challenge as China raises interest rates during bookbuilding.
An existing shareholder of China Construction Bank last night (April 27) offloaded a HK$1.3 billion ($167 million) block of shares in a sale that had the unfortunate honour of being launched half an hour before China announced its first rate hike in 18 months.

Among all the equity offerings that were in the market yesterday, CCB was probably the most negatively affected by the monetary tightening because lenders are so sensitive to economic growth, said one banker who watched the dealflow last night.

The news out of China put downward pressure on European and US markets, which further increased the wariness among investors.

The PeoplesÆ Bank of China said it will raise yuan lending rates effective Friday to ensure a healthy development of the economy and an efficient allocation of resources. The benchmark one-year lending rate will increase by 27 basis points to 5.85%, while the six-month lending rate was raised by a smaller 18 basis points. Deposit rates were left unchanged.

Still, joint bookrunners Deutsche Bank and UBS were able to complete the deal in just over one hour and to price it in the upper half of the price range at only a modest discount to ThursdayÆs close of HK$3.275.

The execution would have been helped by the fact that û although sizeable in money terms - the shares on offer accounted for no more than 0.18% of the outstanding share capital of China's largest Hong Kong-listed lender and 1.2% of the freefloat. The transaction was also equivalent to only about one dayÆs worth of trading volume, meaning it was easily absorbed by the market.

The sale comprised 400 million secondary shares which were sold at HK$3.25 apiece after being marketed in a range between HK$3.20 and HK$3.275. The upper end of the price range was equal to the latest closing price, while the low end marked a discount of 2.3%. The final price translated into a discount of 0.76%.

Demand came predominantly from Asia, although there was also good demand from the US and from a few accounts in London, according to sources. In total, more than 50 investors were said to have bought into the deal, including some existing shareholders even though the share offer came on the heels of a disappointing full-year earnings report on April 6.

In the wake of that report, there has been a lot of short selling in the stock, which has contributed to a 9% drop in just three weeks.

The seller of the shares wasnÆt disclosed. However, the fact that the placement took place six months after the October 27 trading debut sparked speculation that it could have been linked to an IPO-related lock-up. All the pre-IPO investors had longer lock-ups than six months, however, and according to a market source the investor selling yesterday had bought the shares in the IPO.

One observer noted that the share price could get an upward boost, if the manager of the Hang Seng Index confirms CCB will join the index when it announces its next index rebalancing in May.

ôThat would be a good liquidity event, but the stock has also come off significantly from its highs of HK$3.80 (in February) and people are starting to call the bottom,ö he said.

Not everyone it seems. Morgan Stanley, which took CCB public together with China International Capital Corp and Credit Suisse in October last year, downgraded the stock to underweight earlier this month citing the fact that the trend in net interest margins, loan growth and credit costs all surprised on the downside in the final results for 2005.

At the time of the report, the stock was trading at HK$3.60, which according to Morgan Stanley was equal to a 2006 PE multiple of 18.3 times. That made it ôone of the most expensive stocks in the region,ö said the bank, which has a target price of HK$3.06 on the stock.

At the current price, the shares are still 39% above the IPO price.
¬ Haymarket Media Limited. All rights reserved.
Share our publication on social media
Share our publication on social media