Fushan placement set to raise $339 million

Two-thirds of the upsized deal are new shares, allowing the coking coal producer to raise new capital for acquisitions, while the rest of the shares are sold by the vice chairman.

Fushan International Energy Group, a Chinese investment holding company that is primarily focused on the production of coking coal, was in the market last night, aiming to raise capital for future acquisitions and capital expenditure through a top-up placement. The company's vice chairman also took the opportunity to offload some additional shares of his own.

Despite it being a busy night in terms of capital raising with three deals out of India attempting to raise at least $700 million and the launch of a $300 million global depositary receipt offering by Taiwan's Shin Kong Financial Holding that is due to price tomorrow, Hong Kong-listed Fushan was able to attract strong enough demand to upsize its offering in full, according to sources. The final price hadn't yet been signed off in the early hours of this morning, but was expected to be fixed slightly above the mid-point of the indicated range at HK$4.38 for a total deal size of HK$2.63 billion ($339 million).

The total deal size amounted to 600 million shares, including an upsize option of 50 million shares. Two-thirds of that was new shares issued by the company (via a top-up placement), while the rest were sold by vice chairman Wong Lik Ping. The shares were marketed in a range of HK$4.29 to HK$4.45, which represented a discount of 4.5% to 7.9% versus yesterday's close of HK$4.66. The expected final price of HK$4.38 will result in a discount of 6%.

The deal, which was jointly arranged by Credit Suisse and Deutsche Bank, accounted for 13% of the issued share capital, or about 14 days worth of trading volume based on the daily average for the past three months.

The placement comes after a period during which the company has been surrounded by a largely positive news flow, including a recovery in steel prices that has allowed Shanxi-based Fushan to increase its selling prices; the completion of a new clean coal washing plant; and the acquisition of more shares in the company by its largest shareholder - steel manufacturer Shougang - which is also a major customer. Being a producer of coal that is primarily used for steel production, Fushan is also benefitting from the pickup in construction that is being generated by the government's stimulus package.

"Along with the possible finalisation of the mining rights of a new mine, everything seems to be on the right track for the company," BOC International analyst Lawrence Lau said in a research note issued at the beginning of this month. Lau raised his target price for Fushan by 60% to HK$4.94, which he said was based on a 2009 earnings per share multiple of 14.

And Lau isn't the only one being positive. According to Bloomberg, the 10 analysts who cover the stock all have a buy recommendation or outperform rating on it.

The company's share price, while still volatile, has tripled since early March, which may have contributed to the investor interest yesterday. But perhaps more importantly, sentiment for the overall equity market is also improving again after a pause that lasted for several weeks. Market watchers say a series of forecast-beating second quarter earnings reports in the US last week as well as more positive economic data have helped to boost investor confidence.

In Hong Kong, the Hang Seng Index has gained for five straight days, adding a combined 13%, and trading volumes are improving again after falling to quite low levels in recent weeks. Yesterday's 3.7% rally saw the index close above 19,000 points (at 19.502 points) for the first time since September last year. Meanwhile, Fushan's share price added a net 12% over the seven sessions to last Friday, although it did fall 1.9% yesterday before the placement was announced.

One source said Fushan's placement saw good demand from both Asia and Europe and attracted close to 100 accounts, including a few existing shareholders.

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