Chinese orange grower sells new shares to pay for acquisition

The company raises $50 million in new funds and substantial shareholder Chaoda monetises part of its holdings for a total deal size of $69.7 million.

Asian Citrus Holdings, an operator of orange plantations in China, yesterday completed a top-up placement to raise money for a recently announced acquisition. In connection with the placement, the company's second largest shareholder, fruit and vegetable grower Chaoda Modern Agriculture, took the chance to sell 27 million existing shares, reducing its stake to 22.8% from 28.2%.

Including the Chaoda portion, the deal amounted to HK$541.5 million ($69.7 million).

The deal offered the first real chance for Hong Kong investors to buy into Asian Citrus in bulk after it listed on the Hong Kong stock exchange in November last year. The company listed through introduction -- i.e. without any issuance of new shares. However, since its listing, trading volumes in Hong Kong have been well above those on the Alternative Investment Market in London where the company has been listed since August 2005.

The placement comprised Hong Kong-listed shares only, which will increase the liquidity of the stock in this market, and should swing the turnover ratio even more in favour of Hong Kong.

The deal comprised 95 million shares, of which 68 million, or 71.6%, were new and 27 million secondary. Including both portions, it accounted for about 12.1% of the existing share capital and 30 days worth of trading volume. The shares were offered in a range between HK$5.70 and HK$6.00, which represented a discount of 6% to 10.7% versus Tuesday's closing price of HK$6.38 in Hong Kong. Since the stock currently trades at a premium on AIM, the discount versus the latest close there was a bit wider at 10.1% to 14.6%.

Like the placement in Hong Kong-listed pork meat processor China Yurun Food Group that was in the market last night (see separate story on today's website), Asian Citrus priced at the bottom of the offering range for the maximum discount of 10.7%.

However, the Asian Citrus deal was completed well before Yurun hit the market. The deal launched after the London close on Tuesday, but was kept open into yesterday morning to give Asian investors a proper chance to participate. The stock was suspended in the morning session to enable the bookbuild to continue, and while the placement was priced and allocated before midday, the documentation wasn't cleared by the exchange in time for it to resume trading as the afternoon session opened. Consequently, Hong Kong investors will get their first chance to react to the deal as trading opens this morning. The share price fell 2.9% in London last night, which left the stock at 54.50 pence or the equivalent of HK$5.55.

The company said last week that it had entered into a non-legally binding agreement to acquire a citrus fruit plantation in China with approximately 1.1 million citrus fruits trees and ancillary facilities. It didn't specify the cost of the acquisition, but the source said that the $50 million that the company will raise from the share placement will be used primarily to fund this acquisition.

Bank of America Merrill Lynch and CLSA were joint bookrunners for the transaction.

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