China's largest private car manufacturer Geely Automobile Holdings raised HK$1.08 billion ($138 million) from a share placement on Tuesday night, the company announced yesterday morning.
A total of 800 million shares were on offer, of which 570 million were primary shares. The remaining secondary portion was sold by Proper Glory Holdings, Geely's controlling shareholder, which is 90% owned by the carmaker's founder, Li Shu Fu. The vendor agreed to a three-month lock-up after the transaction.
The shares being sold represented 11.34% of the enlarged share capital.
The shares were offered in a range between HK$1.33 and HK$1.38, with a discount of between 4.8% and 8.3% versus Tuesday's closing price of HK$1.45. The final price was set at HK$1.35, which translates to a 6.9% discount.
A source close to the deal said that the book was well covered by around 40 accounts. While there was some demand from hedge funds, the deal was taken up by a core group of long-only accounts that all put in "good, chunky orders".
China's automobile industry has been going through dire straits over the past year, partly due to the fact that nearly everyone who wants a car and can afford it has already got one. And, as a result, car companies have suffered from bulging inventories.
In reaction to this, the government on Tuesday announced that it was increasing the amount of money put aside to subsidise the purchase of new cars to Rmb5 billion ($734 million) from the previous sum of Rmb1 billion. This news could have been behind the 4.3% rise in Geely's shares on the day of the placement.
But more generally, Geely's shares have been a strong performer ever since they hit a low of HK$0.23 in late October. Since then they have had a stratospheric recovery, which gained pace in March. The company's share price fell 4.8% after the placement yesterday to close at HK$1.38.
The company intends to use approximately 75% of the money to fund current and future acquisitions. The remainder will be used as working capital. The current acquisition that needs paying for is the A$58 million ($40 million) purchase of Drivetrain Systems International, an Australian manufacturer of automotive transmissions for original equipment manufacturers. Drivetrain filed for bankruptcy in February and was scooped up by Geely in March.
The share sale was organised by J.P. Morgan and Macquarie.