Three weeks after the Charoen Pokphand Group won approval to buy HSBC’s remaining 15.57% stake in Ping An Insurance, the Thai conglomerate was in the equity market raising cash from a sell-down in its Bangkok-listed subsidiary CP All, the owner of the 7-Eleven franchise in Thailand.
The transaction, which launched just after 7pm Hong Kong time on Thursday and was completed late the same evening, raised Bt9.4 billion ($315 million). The seller didn’t tell investors what it will use the proceeds for — as a privately owned company it doesn’t have to — but it is not too far-fetched to expect that the fundraising is related to the $9.4 billion purchase of Ping An. One source noted that the money may be used to repay other sources of financing used at the time of the acquisition.
When the agreement between HSBC and the CP Group was first announced in early December, HSBC said the Ping An stake would be financed partly in cash and partly with a loan from the Hong Kong branch of China Development Bank. However, CDB later seemed to distance itself from the transaction and when the final approval from the China Insurance Regulatory Commission came through on February 1, HSBC said that the CP Group paid for the entire acquisition in cash.
There have been no further details on the sources of that cash, but the CP Group is controlled by Dhanin Chearavanont, the richest man in Thailand, and is believed to have varying means to obtain the funding needed.
For instance, the CP Group entered into a couple of equity-related financing arrangements with UBS in November last year, just ahead of the acquisition agreement. There is no information available about those arrangements, but they resulted in UBS selling shares in Charoen Pokphand Foods and CP All through two separate self-led block trades to hedge its exposure. Those two blocks raised $353 million and $185 million respectively.
Last week’s direct sell-down in CP All, which was also arranged by UBS, comprised 200 million shares and accounted for about 2% of the company and some 10 days of trading volume. The shares were offered at a price between Bt47 and Bt48 each, which translated into a discount of 3.5% to 5.5% versus Thursday’s closing price of Bt49.75.
The price was fixed at the bottom of the range for the maximum 5.5% discount, which was no real surprise since the deal came on a day when markets in Asia and Europe were under pressure and indications were that US stocks would also fall.
However, a source said the deal attracted sufficient demand from about 40 investors. The order amount was split about 50-50 between hedge funds and long-only accounts and some 80% came from foreign investors. The latter was said to have included a broad regional mix of accounts.
While last Thursday did seem like an odd day to launch a deal given the weak markets — the Thai benchmark index dropped 1.2% and CP All was down 4.3% — investors who came into the deal were likely more focused on the company’s positive 12-month earnings, which were released two days earlier and the strong GDP data out of Thailand the previous week. Several analysts had been upgrading their forecasts for CP All following the results.
According to the source, the bookrunner had also lined up demand for about half the deal before launch, increasing the likelihood of success. With CP All’s results out on Tuesday, this was one of the first days after the blackout that the controlling shareholder was able to sell shares in the company and while the share price fell on Thursday, it had jumped 5% to a 52-week high on Wednesday last week and was up 8.2% since the beginning of this year. It had almost doubled since the beginning of 2012.
The stock had also gained 22% since UBS sold shares in the company on November 28. That block, which raised $185 million, was priced at Bt38.90, which translated into a 4.5% discount to the latest close. It comprised 146 million shares and hence was slightly smaller than last week’s trade.
The source said there was a fair bit of overlap between the buyers of the two blocks.
CP All’s share price fell 4% to Bt47.75 on Friday, but stayed above the placement price. The benchmark SET index gained 0.7%.
CP Group’s stake in CP All will fall to about 43% from 45% as a result of this transaction.