Yesterday seemed like an unlikely day to launch a deal. Equity markets in Asia were mixed, but Hong Kong was down for a second day and Europe was looking weak again. And on top of that, China Pacific Insurance fell sharply on Monday on the back of a sell-down by Carlyle last Friday.
But by 6pm Hong Kong time last night, there were not just one, but three Asian deals in the market, competing for investor attention: Cheung Kong Infrastructure was seeking to raise fresh capital from a top-up placement; an institutional seller was offloading its entire stake in Bangkok Dusit Medical Services; and the chairman of Quanta Computer was monetising part of his stake in the company.
And even though overseas markets continued to worsen during the Hong Kong evening, all three deals got done, with the two blocks in particular attracting a lot of demand. The Bangkok Dusit trade raised Bt4.29 billion ($135 million), while the Quanta chairman pocketed $153 million.
As of early this morning, no details had been announced with regard to the CKI transaction and allocations were only due to be completed before the Hong Kong market opens today. However, investors were told that the deal was covered and that there was price sensitivity towards the bottom of the range. If the price is fixed right at the bottom, the company will raise HK$2.31 billion ($298 million). However, the deal did come with an upsize option so it is possible that the size will still exceed $300 million.
“It’s the same trend as we have seen all year,” one source said. “Investors are very selective, but if you give them a high-quality thematic stock that they are struggling to find ways to invest in, they will come in.”
Bangkok Dusit, which is the largest hospital operator in Thailand, fits that description very well. Healthcare has been a hot theme in Asia for the past couple of months due to the IPO of Malaysia’s IHH Healthcare, which raised $2 billion and attracted a lot of demand. One observer noted that the marketing of IHH made investors realise how strategic these assets are and most companies in the sector have seen their share prices rally as a result.
Except for the portion that went to ethnic Malay investors and the 22 cornerstones, IHH offered only a small amount of stock to institutional investors, and sources say those who didn’t get as many shares as they wanted have been looking for other ways to gain exposure to the sector.
The seller was clearly trying to take advantage of this and it would not be a coincidence that the Bangkok Dusit trade launched on the eve of IHH’s trading debut today. The Khazanah-backed company, whose core hospital operations are in Malaysia, Singapore and Turkey, has been changing hands at M$3.15 to M$3.20 in the grey market, indicating a potential gain of 12.5% to 15% versus the IPO price of M$2.80.
In a similar trade, Bumrungrad Hospital sold its entire 25% stake in Bangkok Chain Hospital two weeks ago, raising $143 million. The block attracted strong demand and was upsized by 24%. Despite the massive size of the deal (relative to the market cap), Bangkok Chain’s share price has hovered around the placement price since it was completed.
Last night’s transaction in Bangkok Dusit also attracted a lot of attention and one source said it was fully covered in 20 minutes. There were several orders big enough to cover the entire deal and when the books closed at 10.15pm Hong Kong time the total demand exceeded the number of shares on offer by about 10 times. However, the biggest orders were price sensitive and the price was fixed below the top of the range.
The seller offered approximately 44.69 million shares at a price between Bt93 and Bt98, which translated into a discount of 3.9% to 8.8% versus yesterday’s close of Bt102. The price was fixed at Bt96 for a 5.9% discount.
About 60 accounts participated in the transaction and sources said at least 60% went to international investors, including both long-only and hedge funds. But there was also good support from domestic high-net-worth investors and institutions.
The deal accounted for 2.9% of the share capital and close to 20 days of trading volume. The seller wasn’t disclosed and described only as an institutional investor. According to the Stock Exchange of Thailand website, the number of shares on offer corresponded exactly to the number of shares held by a Deutsche Bank entity at the end of March. However, the website said the shares were held on behalf of a client.
Bangkok Dusit’s share price is up about 27% this year, compared with a 15.8% gain in the Thai benchmark index. It has added 14% since IHH announced its large cornerstone tranche on June 15 and yesterday closed just 6.4% below the 52-week high of Bt109 that it reached on July 6.
The deal was arranged by Bank of America Merrill Lynch, J.P.Morgan and Phatra Securities.
Meanwhile, CKI was attempting to sell 50 million shares at a price between HK$46.15 and HK$47.62, which translated into a discount of 3.3% to 6.3% versus yesterday’s close of HK$49.25.
The base deal accounted for 2% of the existing share capital, but as noted there was also an upsize option of 16 million shares that could increase the total deal size to about 2.7%. As it was a top-up placement, the deal involves the sale of secondary shares by an existing shareholder, who will then subscribe to the same number of new shares to ensure the money ends up with the company.
This was CKI’s third top-up placement in 12 months and it came on the back of a 16.2% rally in the share price since the end of May, which pushed the stock to a new 52-week high yesterday. In that sense, the deal did seem a bit opportunistic.
However, before the recent rally, the stock had been coming down with the rest of the market as investors worried both about the eurozone crisis and global growth. And yesterday’s share price is really only 2.6% above the level where it traded before the previous placement in March.
Still, the Hong Kong-listed infrastructure company, which is controlled by Li Ka-shing, has a well-established track record as an acquisitive company. And while it hasn’t announced any news deals since the previous equity issue, the management does tend to want to have the capital in place to be able to act on potential opportunities as they emerge. The term sheet said the proceeds will be used as general working capital.
The company has also been aiming to get its free-float above 25% and this deal will bring it closer to that target. At the base deal size, the free-float will increase to 23.4% from 21.8%, according to Bloomberg data.
CKI has a strong shareholder base that is typically happy to come in and support its equity issues and that seems to have been the case this time too.
While there was little information available, sources said the demand was pretty solid. The deal launched at about 5pm Hong Kong time and was kept open until midnight to give US investors a proper chance to take a look at the transaction. While this would have been good on the one hand, it also meant that the deal was still live when US markets opened and started to trade lower amid signs that the eurozone crisis may be worsening. The Dow Jones index finished the session 0.8% lower, while the Nasdaq Composite lost 0.9%. Both indices were off their lows at the close.
In March, CKI raised $300 million from the sale of 50.9 million shares at a price of HK$45.75, which equalled a 4.7% discount to the market price at the time. And in July last year, a few days after it made a bid for UK-based Northumbrian Water, it sold $438 million worth of shares at a price of HK$40.41 each — a 7% discount to the latest close.
Before these three deals, CKI hadn’t sold new equity since 1996.
BOC International and HSBC were joint bookrunners for yesterday’s deal.