Citic Capital Financial raised $140 million on Thursday after offloading its entire stake in China Cinda Asset Management, taking advantage of a 20% two-day rise in the distressed debt manager's shares.
The accelerated share placement was launched late in the Hong Kong day under the joint leads of CLSA and Morgan Stanley, with 229.2 million secondary shares on offer at an indicative price of between HK$4.66 to HK$4.87 per share, according to a term sheet seen by FinanceAsia. The low end of the price range represented a 4.3% discount to April 9’s close of HK$4.87.
The shares subsequently priced towards the middle of the range at HK$4.75 per unit, or a 2.5% discount.
Over 70 lines participated in the book, a fairly even split between long-only institutional investors, China-focused funds, and hedge funds, a source close to the deal said. Although allocations were still being finalised late into the Hong Kong night, the source told FinanceAsia that two-thirds of the book would go to the top-five investors.
Cinda’s recent share price performance has undoubtedly piqued investor interest. Shares have climbed by a fifth in just the last two days, outperforming Hong Kong’s Hang Seng Index, which has risen a chunky 8% over in the same time period.
"Everything in China's gone crazy. Some stocks are up 20% or 30%," the source said. "This block is the first in this new environment [and was] an interesting opportunity for investors."
It's not just the distressed debt manager's recent performance that has impressed investors. Cinda’s shares have jumped 36% since its $2.46 billion initial public offering in December 2013 and they are up 28.8% year-to-date.
The company also reported strong earnings, with revenue totaling Rmb59.8 billion ($9.6 billion) in 2014, a 41% jump on the Rmb42.4 billion generated in 2013. Net income also rose to Rmb11.9 billion last year from Rmb9 billion the year before.
Cinda’s traditional and restructuring distressed assets grew by 150% and 55%, respectively, in 2014 and weak economic conditions offer firms such as Cinda further opportunities to acquire discounted distressed assets, analysts at SWS Research said in a note.
However, with asset prices slipping so have the yields on Cinda’s distressed assets, albeit marginally, SWS Research noted.
Most analysts are bullish on Cinda, noting that the company is currently trading at 1.0 times its 2015 book value, under the targeted valuation for its traditional distressed debt business of 1.4 times and well below its restructured distressed debt business forecasted valuation of 5.5 times.
Hong Kong rally
Providing the backdrop to Citic Capital Financial's Cinda share sale was a sizzling stock market as the Hang Seng Index rallied to a seven-year high, briefly surpassing the 27,000 mark as mainland Chinese investors continued to purchase H-shares via Shanghai-Hong Kong Stock Connect.
The Hang Seng Index rose to as high as 27,838.47 before settling at 26,926.93 by the close.
With A-share markets trading at premiums mainland Chinese investors have piled into Hong Kong via the Shanghai-Hong Kong Stock Connect, giving the market a strong jolt.
Citic Securities was one of 11 banks acting as joint bookrunners on Cinda’s initial public offering in December 2013. The flotation was one of the most successful in Hong Kong in recent years as investors shrugged off warnings about investing in a distressed debt manager.
Cinda attracted $20 billion of demand from retail investors and over $40 billion of orders from institutional investors, with over 700 institutional investors placing orders for the company. That allowed Cinda to fix the price at the top of the range at HK$3.58 per unit for a total deal size of $2.46 billion, making the firm the first Chinese distressed debt manager to float its shares.