Hong Kong-listed CLP Holdings last night raised HK$7.61 billion ($982 million) from a placement of new shares that could well be the final large overnight trade in Asia this year. It is also the second largest primary share placement by a Hong Kong-based company this year after Hong Kong Exchanges and Clearing’s $1 billion deal last week.
As the largest producer and distributor of electricity in Hong Kong the company is viewed as a “safe” investment and its shares are bought primarily for the stable dividends and relatively high yield. It was not a big surprise therefore that the deal attracted a lot of interest from yield-focused accounts such as high-net-worth retail investors, private banking accounts and corporates, but the momentum they created also helped draw institutional investors (including income seeking funds and index funds) and hedge funds to the transaction.
In all, more than 100 investors submitted orders and when the books closed at 10:30pm Hong Kong time after just under four hours of bookbuilding, the deal was multiple times covered, according to sources.
The company sold 5% of its existing share capital, which translated into approximately 120.3 million shares and was the maximum it could issue without seeking shareholders approval.
The shares were offered at a price between HK$62.90 and HK$63.90, or at a discount of 4.9% to 6.4% versus yesterday’s close of HK$67.20. The price was fixed in the lower half of the range at HK$63.25 for a 5.9% discount, which looked pretty tight considering that the transaction accounted for about 50 days of trading volume and will result in 5% dilution for existing shareholders.
“I think CLP got a good price,” one source said, while suggesting that the company’s more than 100-year history and the fact that it is a household name in Hong Kong likely contributed to the strong interest — together with the yield, which works out at about 4% at the placement price.
One source estimated that about 50% of the demand may have come from retail investors, private banks and corporates, but noted that they ended up with only 25% of the deal after allocations were skewed towards institutional accounts. The bookrunners are no doubt hoping that the retail investors who didn’t get as much paper as they wanted will come in and support the stock in the market today.
The deal also came after CLP announced that it will increase its electricity tariffs by 5.9% next year, which will help offset higher fuel costs and will enable the company to maintain its guaranteed return at 9.9%. Potential investors would have viewed this as a positive for the stock.
CLP said that it will use the money raised for future capital expenditures, both in Hong Kong and abroad. These investments may include the expansion of the coal-fired Fangchenggang power station in Guangxi, in which CLP owns 70%, and the development of renewable energy projects, it said in a note to investors.
According to a source, the share sale was also driven by a desire by CLP to reduce its gearing and free up additional balance sheet capacity that may be used for future acquisitions. Although no specific acquisition target has been announced at this point. The source said the gearing will fall to 65% from 80% as a result of this deal.
The gearing had edged higher after the company’s key operating unit, CLP Power, in October sold $600 million of dual-tranche bonds with a maturity of 10.5 years and 15 years.
While it didn’t refer to it specifically, it is likely that the decision to do a share sale is at least partly linked to the fact that company’s plan to list its Australian subsidiary TRUenergy this year hasn’t materialised. TRUenergy is the third-biggest privately-owned energy business in Australia with 2,103 megawatts of wholly owned generating assets and about 2.8 million customers. It is expected to raise somewhere between A$2 billion and A$3 billion ($2.1 billion to $3.2 billion) through the IPO with at least part of that money going to CLP.
According to sources, three banks were invited to bid for the deal on a competitive basis after the Hong Kong market closed yesterday, but in the end CLP decided to have the banks work on the deal together. The three were Goldman Sachs, J.P. Morgan and UBS.
Rothschild acted as a financial adviser to the company on the transaction. The UK-based firm is also advising CLP in relation to the TRUenergy IPO.