CPMC raises $118 million from new share sale

Two anchor investors take up more than half of the deal, allowing the Chinese packaging company to offer its shares at a tight 4% discount.
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CPMC makes cans for Tsingtao Brewery among others (Imaginechina) </div>
<div style="text-align: left;"> CPMC makes cans for Tsingtao Brewery among others (Imaginechina) </div>

CPMC Holdings, a Chinese manufacturer of packaging for consumer goods, last night raised HK$914.7 million ($118 million) from a top-up placement.

The deal was heavily anchored at launch but also saw good additional demand from investors who were keen to get hold of the highly illiquid stock, which has a turnover of less than $800,000 a day. The offering was covered in 90 minutes and when the order books closed at 10pm, it was at least a couple of times covered.

Hong Kong-listed CPMC sold 166 million shares, which accounted for 20% of the outstanding share capital and is the most it could sell without having to seek additional approval from its existing shareholders.

The shares were offered at a fixed price of HK$5.51, which translated into a discount of 4% versus yesterday’s close of HK$5.74. The discount was very tight for a deal that accounted for a fifth of the market capitalisation and just over 150 days of trading volume, but with two anchor investors taking up more than half the deal and indications of interest from other investors who had met the management on a recent non-deal roadshow, the bookrunners clearly felt confident that there would be enough demand.

And there was. Surprisingly, given the tight discount, a lot of the early interest came from hedge funds and other momentum funds who likely viewed the sale as a key liquidity event in the stock. However, the biggest orders were heavily-weighted towards long-only funds, one source said.

Given the thin trading activity and the fact that CPMC is a small mid-cap stock, the order book also had strong fundamental bias, added another source. The buyers included a number of existing shareholders, although most of them have had relatively small positions until now. About 50 investors participated in the transaction.

The allocations favoured long-only investors who had met the management on the road, as well as high-quality hedge funds. Some 70% of the shares were allocated to Asian investors, while about 26% went to the US and 4% to Europe, the sources said.

The deal comes on the back of a 71% rally in CPMC’s share price so far this year, which has helped boost investor appetite for the stock. It reached a new 52-week high of HK$5.80 on Friday last week, but fell 1% yesterday.

Investors also like the fact that it is part of the Cofco Group, which is one of the largest food businesses in China, and its market leading position in several product sectors.

Some observers view it as a proxy for Chinese consumption, but the company’s metal and plastic packaging products are used mainly for consumer staples such as food, drinks and household chemical products, which makes it less sensitive to a slow-down in China’s economic growth.

Its main focus is on beverage cans and its main customer is JDB, which makes a popular herbal tea drink named Wang Laoji. It also makes cans for beer, carbonated drinks, fruit and vegetable juices and dairy products, as well as food cans, metal caps, steel barrels and packaging for aerosols.

In the first six months this year, it posted a 32% increase in net profit to Rmb179.6 million on the back of a 26% increase in revenues.

CPMC said it will use the money raised to fund new factories in Guangzhou and Hangzhou and for general working capital. Such clearly defined use of proceeds always goes down well with investors.

However, the company has had a tough couple of years before it turned around in October last year, and despite the strong gains year-to-date, the share price is still only just above the IPO price of HK$5.39. The company listed in Hong Kong in November 2009.

The deal was arranged by BOC International, Goldman Sachs and Standard Chartered. Goldman came into the trade a bit later than the other two and was said to have underwritten just 10% of the deal. The rest was split between BOCI and Standard Chartered.

There was also a second deal in the market last night – a block trade in noodle maker Tingyi (Cayman Islands) Holding Corp that was arranged by Goldman Sachs on a sole basis. By coincidence, it was roughly the same size as the CPMC deal and also exposed to the same sector.

However, the seller of the Tingyi shares was an undisclosed institutional shareholder and the deal was handled by the Goldman sales desk. Aside from the initial term sheet, no further details of the transaction were available last night.

The seller offered approximately 38.3 million shares at a price between HK$23.75 and HK$24, which translated into a discount of 1% to 2.1% versus yesterday’s close of HK$24.25. It also implied a deal size between HK$908.8 million and HK$918.4 million ($117 million to $118 million).

Because the seller wasn’t identified, Goldman won’t be able to claim any league table credit for the deal.

¬ Haymarket Media Limited. All rights reserved.
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