Hang Lung Group shareholder sells shares at 5% discount

While small in size at $88.5 million, the block trade allows the institutional shareholder to divest 27 trading days' worth of stock in one go.
An existing shareholder of Hang Lung Group last night enlisted the help of Morgan Stanley to offload HK$688.6 million ($88.5 million) worth of shares in the company through a block trade.

Such sell-downs are becoming increasingly popular as a way of exiting illiquid stocks as the regionÆs stock markets get closer to their record highs and many individual companies have already breached theirs.

The high share prices mean the discount at which the stock has to be offered in a publicly marketed block trade has a relatively smaller impact on the overall profit made by the seller, who also gets the benefit of being able to sell a large chunk of stock all at once. Trying to sell the same amount of shares in the market could otherwise take days, or even weeks.

According to a source, the undisclosed institutional shareholder had already been selling Hang Lung Group shares in the market on a few occasions before deciding to complete the sale of its desired stake through a placement. The shareholder is believed to still own stock in the company following the sale.

In October alone, there have been similar sell-downs by shareholders in Hongkong Land, Great Eagle Holdings, China Resources Power and Kerry Properties and, according to bankers, more are likely to follow in the next couple of months.

Last nightÆs sale accounted for 27 to 29 days' trading volume in Hang Lung Group, depending on which historical period you look at, although it did translate into only 2.6% of the outstanding share capital. The modest trading activity in the stock is mainly a function of the company being essentially a holding vehicle for 56%-owned Hang Lung Properties, which is also listed in its own right.

The 34.26 million shares were sold at a price of HK$20.10, or a 5% discount to yesterdayÆs (October 24) closing price, after being offered at a discount between 3% and 5%.

The low-end pricing came as no surprise given that the transaction accounted for so many trading days, but market watchers also noted that investors tend to prefer to buy Hang Lung Properties directly rather than through the parent.

ôHang Lung Group is only a holding company and since Hang Lung PropertiesÆ market cap is much bigger, investors tend to focus on that,ö says Eric Yuen, a property analyst with Dao Hang Bank.

According to Yuen, investors buy Hang Lung Group only when the share price discount to its net asset value (effectively its holdings in Hang Lung Properties) is big enough to warrant arbitrage trading between the two stocks. And after a catch-up run, the discount is now hovering between 20% and 30%, which is in line with other holding companies such as Wheelock & Co and Swire Pacific.

ôThis is the right time to sell, but not the right time to buy. I donÆt think Hang Lung Group is attractive above HK$20,ö he says.

Even so, the placement was completed in less than 90 minutes, by which time more than 25 investors had signed up for shares. The order book was closed once a sufficient amount of subscriptions were received, according to a source, who says the shares went primarily to investors based in Hong Kong, Singapore and Europe.

One observer says the fact that the general market is trading so well at the moment, with the Hang Seng Index gaining 0.35% yesterday to close at fresh 6.5-year high of 18,153 points and daily turnover back above HK$30 billion ($3.8 billion), helped attract investors to the deal. The index is moving steadily towards its all-time high of 18,397 points reached on March 28, 2000, while Hang Lung Group added 0.95% yesterday to close at HK$21.15 û only 3% below its all-time high of HK$21.80 which it hit in early September.

ôIf you can buy a stock at 5% discount when the market is doing this well, then why not,ö says one observer. Part of the buying may also have been technical as some people wanted to cover short positions in the stock, which had been entered into amid market talk that Hang Lung Group, or more likely Hang Lung Properties, was about to conduct a capital raising exercise, he added.

ôQuite a few investors are also long the Chinese developers and short the Hong Kong players,ö the observer says.

However, institutional investors like Hang Lung Properties primarily for its expansion in China, which is still at an early stage but is expected to be the main growth engine going forward as its Hong Kong operations are stagnating. In the fiscal year to June, 2006, the developer saw its net profit decline by 35% to HK$4.4 billion ($565 million), as it sold fewer residential units in the territory.

In August, the company acquired another prime lot of 92,000sqm in Shenyang City for Rmb895 million and said it plans to invest Rmb8 billion ($1.03 billion) to build a multi-complex development that will include a world-class shopping mall, a six-star hotel, office towers and serviced apartments. The project will have a gross floor area of about 1.1 million quare metres.
¬ Haymarket Media Limited. All rights reserved.
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