CNBM follow-on raises $493 million

The offering comes on the back of reverse inquiries and is priced at a 6.5% discount to the 2010 high.

China National Building Materials (CNBM) on Tuesday raised new capital from a HK$3.82 billion ($493 million) follow-on offering that it will use to reduce leverage. The deal included an 8.6% portion of shares that were sold by the National Social Security Fund (NSSF), meaning CNBM, a producer of cement and other building materials, pocketed about $450 million.

CNBM’s share price has had a strong run since early May, rising 63%, and that demand was evident in the placement as well. The deal was covered in just 45 minutes and, when the books closed after less than two hours, it had received orders for about three times the shares on offer. According to a source, there had been reverse inquiries for stock from a number of investors since the company’s first half earnings in late August – which showed a 25.7% rise in net profit – and the allocation was skewed towards these investors and long-only funds that came in with large orders. The buyers also included global asset managers, sovereign wealth funds and global hedge funds, with most of the demand coming from Asia or Asia-based global accounts, followed by Europe and the US. In all, there were more than 80 orders in the book.

The deal comprised 238.9 million H-shares, including the 20.6 million secondary shares sold by the NSSF, or 19.9% of the existing H-share capital. They were offered in a range between HK$15.85 and HK$16.65, which represented a discount of 2.7% to 7.4% versus Tuesday’s closing price of HK$17.12.

With the share price having gained 5.3% to a 2010 high earlier in the day, investors would have been keen to get as wide a discount as possible. The placement also accounted for a bulky 14 days of trading volume. However, the strong demand enabled the price to be fixed slightly above the low end at HK$16, resulting in a 6.5% discount versus the close, or 5.4% versus the day’s volume weighted average price.

The stock held up well in the wake of the deal yesterday, likely deriving some support from the skewed allocations. It never fell as far as the placement price and closed at HK$16.18, down 5.5% on the day.

The deal was arranged by Morgan Stanley and China International Capital Corp, the same two banks that arranged the previous follow-on for the company in February 2009 when it raised $300 million at a 9.5% discount. Morgan Stanley also led the company’s IPO in 2006 and its first follow-on in 2007 on a sole basis, demonstrating its strong relationship with the cement maker. According to sources, the placement this week was not put out for general bidding.

Most banks are busy right now with numerous initial public offerings in the market across Asia. At the same time, placements and block trades continue to come at regular intervals and the convertible bond market has started to pick up pace. Morgan Stanley alone has been involved in transactions totalling more than $8.5 billion in the past week, including Monday’s $300 million CB for Korean telecom operator LG Uplus, last week’s $6.5 billion sell-down in China Mobile by Vodafone, and Newbridge’s $1.2 billion exit from Ping An Insurance (Group).

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