Cheung Kong trims stakes in shipping companies

Cheung Kong and Hutchison raise a combined $479 million from the sale of shares in China Cosco and CSCL.
The Cheung Kong group was in the market last night with two separate block trades as it sought to cash in part of its holdings in Hong Kong-listed shipping companies China Cosco Holdings and China Shipping Container Lines (CSCL).

While somewhat odd that Cheung Kong decided to do both trades on the same night, as this could have resulting in the cannibalising of demand, both deals were successful and the group walked away with total proceeds of $479 million.

Both blocks were priced at the bottom of their respective ranges, but since most investors have routinely been putting orders in at the low end over the past couple of weeks as the market has become less predictable, it may not have made any difference to the final outcome had the two deals been launched on separate days.

And having invested in both these companies at the IPO stage, the group still made a handsome profit. And having invested in both these companies at the IPO stage, the group still made a handsome profit. China Cosco has fallen 32% from a high of HK$39.45 in late October but is up 527% since its IPO. Similarly, CSCL has also been under pressure lately losing 41% from its October 24 high of HK$10.88, despite a well-received sale of shares into the A-share market. The stock has doubled since its June 2004 IPO at HK$3.175.

The timing of the two transactions also looks pretty savvy when condsidering that they were completed just hours ahead of the Federal ReserveÆs final interest rate announcement this year. Equity markets had been somewhat jittery leading up to this and reacted with disappointment when the Fed decided to cut its benchmark rate by only 25 basis points, compared with some expectations of a 50bp cut. The Dow Jones index, which had been trading higher before the announcement, fell sharply on the news and finished down 2.2%.

The China Cosco block was the larger of the two and at the final price of HK$24.80 raised HK$2.21 billion ($284 million). Arranged by JPMorgan, the deal comprised 89 million shares that were offered by Hutchison Whampoa in a range between HK$24.80 and HK$25.20. The final price represented a discount of 6.9% versus yesterdayÆs close of HK$26.65.

Meanwhile, Cheung Kong (Holdings) itself sold 250 million shares in CSCL at a price of HK$6.06 for a total deal size of HK$1.52 billion ($195 million). The shares were offered in a range between HK$6.06 and HK$6.19 and the final price was equal to a discount of 5.5% versus yesterdayÆs close of HK$6.41. UBS was the sole bookrunner on this deal.

The two deals look to be part of a year-end trend whereby large shareholders are tidying up their portfolios and booking some profits on the gains made during the year. Temasek recently reduced its stakes in Bank of China, China Construction Bank and China Cosco through three separate block trades, raising a combined $1.3 billion in the course of one week. Last week an undisclosed institutional seller offloaded $310 million worth of stock in China Unicom.

Last night, one institutional shareholder also attempted to sell $100 million worth of shares in Gome Electric Appliances, although that sale was disrupted shortly after launch as the seller supposedly didnÆt like the price. Citi was mandated to lead that transaction.

Cheung Kong itself has also been busy recently selling shares in China Southern Airlines through a series of small market trades. Since late September the property conglomerate has reduced its stake in the Chinese airline to 0.85% from 15.4%. According to the stock exchange website, those sales were done at gradually declining prices ranging from an average HK$13.213 in September to HK$8.67 million for the final sale of a 7% stake less than two weeks ago. That last trade totalled about $85 million.

The CSCL trade accounted for about 6.6% of the H-share capital, or about three days trading volume, and attracted approximately 25 investors The China Cosco deal accounted for six to seven days worth of trading volume and 3.4% of the H-share capital. Close to 30 investors were said to have bought in.

Hutchison will still hold about 3.9% of the H-share capital in China Cosco after this deal, while Cheung Kong will own 4.2% of CSCL.
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