Chaoda chairman cashes in at near record highs

Kwok Ho raises $106 million after selling shares in the fruit and vegetable grower at the bottom of the offering range.
The chairman of Chaoda Modern Agriculture last night raised HK$828 million ($106 million) from the sale of a 5% stake in the fruit and vegetable grower at an 8.5% discount to the latest close.

The sale came as the stock has fallen in five of the latest six sessions after reaching a new record close of HK$7.75 on June 11. Yesterday it fell 1.2% to HK$7.54, while the benchmark Hang Seng Index edged up 0.5% to 21,684 points and its third record high in as many days.

Chaoda has had a strong run in recent months, however, and analysts believe the set-back is likely to be temporary as investors are very keen on soft commodities at the moment. In addition, food prices in China continue to move higher and are currently the single largest reason for the uptick in consumer inflation.

Chairman Kwok Ho offered 120 million shares through a company called Kailey Investment at a price between HK$6.90 and HK$7.25. The bottom of the range translated into a discount of only 3.9%, but according to sources, it became clear quite early on that the deal was not going to price at that end after the arrival of a number of chunky orders at bottom of the range.

Indeed the momentum never moved away from there and the price was fixed at HK$6.90, which is in line with the 30-day moving average. It is also largely on par with the 8.2% discount achieved on the most recent placement of Chaoda shares in April 2006. That sale, which also comprised secondary shares from the chairman, was significantly smaller at $72 million, but was marketed together with a $173 million convertible bond issued by the company.

The latest sell-down will see KwokÆs stake fall from 30.6% to 25.6%, or to 23.3% adjusted for a full conversion of the outstanding CB. This transaction also includes a greenshoe of 30 million shares, which could reduce his holdings by another 1.3 percentage points. If fully exercised, the greenshoe will boost the total proceeds to $133 million.

The deal attracted about 40 investors, of which about a quarter came from the US. Most the rest of the demand was generated out of Asia, apart from a small amount of interest from Europe. According to one source, some of the investors in the earlier CB returned to buy outright equity and the general mix also included a few hedge funds and China specialist funds.

Credit Suisse, which had a busy night since it was also involved in KDICÆs sell-down of Woori Financial, acted as sole bookrunner for the placement.

ChaodaÆs share price has rallied 84% from its 2007 low of HK$4.10 on March 5. Part of the gains came in response to the chairman telling analysts in March that the companyÆs relatively large cash balance will be used for the acquisition of more land and to improve its infrastructure û not for any more investments into unrelated businesses, including titanium.

However, even with that strong a gain, the company still trades at a decent 2008 price/earnings ratio of nine times.

According to a ratings notice by MoodyÆs Investor Services, Chaoda has outlined an aggressive expansion plan to double its cultivation area by fiscal 2008.
¬ Haymarket Media Limited. All rights reserved.
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