Esprit and Brilliance complete placements

An active day for the Hong Kong equity markets as Esprit and Brilliance China complete placements.

For Esprit, its $154 million block trade marks the second time this year that Chairman Michael Ying has reduced his stake in the company. This time he has done it as the stock hits an all time high, with Credit Suisse First Boston leading a 50 million share deal for the group.

Pricing was completed at HK$23.45 per share, representing a 5% discount to the stock's HK$25.20 close on Thursday. As a result of the deal, Ying has reduced his stake from 38% to 34% and increased the freefloat of the company by about 8%.

One of the reasons for completing the deal was to increase liquidity in a stock, which only trades about 3.2 million shares a day. The new deal equates to about 15 days volume.

Ying's last divestment came in May when Merrill Lynch raised $80 million after selling 42 million shares at HK$14.70 each. The day following the transaction, the share price plummeted, but has since outperformed the market in spectacular fashion. At the time of the first deal it was 16% up on the year. At the time of the second, it is up 91%.

Books were held open to allow US participation and were closed after they were comfortably covered. Observers report the participation of just over 50 accounts, of which more than half already hold the shares. By geography, distribution split 25% Asia and the remainder split fairly evenly between Europe and the US.

The stock's recent share price performance means Esprit has now closed the valuation gap with its European retailing peers and is currently trading on a p/e ratio of nearly 20 times forward earnings and price to 2003 book ratio of 5.57 times.

Some analysts believe the stock still has some upside after management released guidance that top and bottom line growth for 2004 is likely to stay in double digit territory. Esprit recently marked the tenth anniversary of its listing on the Hong Kong Stock Exchange with the release of record results. In the Financial Year to June 30, the company recorded a 27.9% increase in net income to $141 million and expanded gross margins from 49.1% to 49.9%.

Earlier in the day, Citigroup completed a $39 million block trade for Chinese auto manufacturer Brilliance China. Books closed five times covered within the space of an hour and the deal was priced with one of the tightest ever discounts for the Hong Kong market.

A total of 113.64 million secondary shares were sold at HK$2.65, representing a 1.85% discount to the stock's HK$2.70 close and 3.1% of the company's share capital. Unsurprisingly, pricing came at the tight end of the marketed range between HK$2.55 and HK$2.65.

The deal had a distribution split of 60% Asia, 30% Europe and 10% US.

Year-to-date, the stock has been one of the best performers on the HKSE, nearly doubling since the beginning of the year when it traded at HK$1.42. Nevertheless, analysts still have a buy recommendation in the expectation that the company's BMW joint-venture will deliver strong earnings as demand surges.

First half net income for the company rose 98% year-on-year to RMB574 million.

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