China Everbright International sells $162 million of new shares

The China-based water treatment and alternative energy company prices its top-up placement near the mid-point for an 8% discount. Meanwhile, HSBC sells its entire stake in India’s Federal Bank, raising $61 million.
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A government official drinks water that has been converted from sewage water at a treatment plant in Chongqing (Imaginechina) </div>
<div style="text-align: left;"> A government official drinks water that has been converted from sewage water at a treatment plant in Chongqing (Imaginechina) </div>

Yesterday turned out to be a busy day in the Asian equity capital markets. This is to be expected as more stocks become eligible for sale following the expiry of blackouts around first-half or second-quarter earnings announcements.

Aside from Permira’s $755 million sell-down in Galaxy Entertainment last night, China Everbright International (CEI) was also in the market yesterday with a top-up placement that raised $162 million. And, in India, HSBC sold its 4.98% stake in Federal Bank through a block trade that launched late on Monday but priced yesterday morning, raising Rs3.41 billion ($61 million).

China Everbright International
Hong Kong-listed CEI is involved in a range of green environmental protection and alternative energy businesses in China, including waste-to-energy, methane-to-energy, straw cogeneration, biomass power generation and solar power. However, its core business is water treatment, which is a utility business and hence viewed to be fairly defensive – an attractive feature as macroeconomic concerns continue to loom over equity markets globally. The company was raising money to fund its existing projects.

The deal was launched yesterday morning after the stock was suspended from trading, giving sole bookrunner J.P. Morgan ample time to market the transaction.

The company offered 350 million shares, which accounted for 9.5% of the existing share capital and about 40 days of trading volume. Because it was a top-up placement, the shares were initially sold by an existing shareholder, Guildford Limited, although the seller then subscribed to the same number of new shares at the same price to ensure all the money goes to the company.

The shares were offered at a price between HK$3.53 and HK$3.64, which translated into a discount of 6.4% to 9.3% versus yesterday’s close of HK$3.89. A source said the deal was covered at lunchtime and continued to build after that. By the time the order books closed at 6pm, the transaction was well covered and had attracted almost 60 investors.

However, there was some price sensitivity around the mid-point and the price was fixed just below that at HK$3.58 for a discount of 8%. One source said the bottom of the price range was set below the price that J.P. Morgan paid for the shares to ensure sufficient momentum in the transaction. By pricing near the mid-point it ensured it was able to claim back its fees.

According to the first source, there were clear pockets of demand from sector funds (environmental and water funds), existing shareholders and global long-only funds. There was also some interest from hedge funds. About 20% of the transaction was estimated to have gone to existing shareholders.

The placement came on the back of the strong run in CEI’s share price. Since the beginning of October last year, the stock has gained 159% and yesterday’s close was only 9.1% below the all-time high of HK$4.28 that it reached in mid-July.

Federal Bank
Meanwhile, HSBC, through a Mauritius-based entity, sold all of its 8.5 million shares in India’s Federal Bank. The shares were offered at a price between Rs393.35 and Rs405.75, which translated into a discount of 2% to 5% versus Monday’s closing price of Rs414.05.

The price was fixed at Rs400.40 for a 3.3% discount.

Given the small size of the deal, it attracted less than 20 investors. However, the order book was said to have been well covered by a mixture of international and domestic investors, with a slight skew towards domestic funds in terms of overall demand. The books opened at about 7pm Hong Kong time and stayed open for about two-and-a-half hours.

The deal came just two months after HSBC sold its remaining stakes in two other Indian banks – Axis Bank and Yes Bank – raising a combined $423 million. It held a 4.75% stake in each of those two banks. The two blocks were sold concurrently with the $328 million Axis Bank trade priced at a 4.5% discount to the latest close and the $95 million Yes Bank deal at a slightly narrower 3.5% discount.

Ever since those two deals, the market had been speculating that HSBC would exit Federal Bank as well. The UK-headquartered bank is in the process of selling non-core assets around the world, and the stakes in these Indian banks were far too small to be viewed as core to its business. Last year HSBC sold – or closed – 16 non-strategic businesses, and this year it has announced more than 15 disposals or closures, including the sale of its retail operations in Thailand.

Federal Bank’s share price was up 22.1% year-to-date before the launch of the block trade on Monday evening. It fell 2.6% yesterday to Rs403.15, but held well above the placement price throughout the session.

HSBC was the sole bookrunner for the deal.

¬ Haymarket Media Limited. All rights reserved.
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