Coming on the heels of an unexpected cut in the prime lending rate by HSBC and Bank of East Asia on Monday and providing an opportunity to buy a fairly illiquid stock in bulk, the share sale was in demand. According to a source, the deal was more than six times covered with 150 accounts submitting orders.
The strong demand allowed sole bookrunner Credit Suisse to increase the size from the initial 400 million shares on offer, although not quite as much as it had hoped. Early information to investors indicated that the deal would be increased by 7.5% to 430 million shares, or about $900 million. However, sources say the stock exchange objected to this as it would have meant the total size would have exceeded the total market value of the selling shareholder û parent company Hang Lung Group û by more than 25%.
Totalling about 26% of Hang Lung GroupÆs market cap, a deal of 430 million shares would have constituted a major transaction for the seller and would have required shareholdersÆ approval. This was something all parties involved wanted to avoid so the total deal was increased to no more than 410 million shares, or 9.9% of the enlarged share capital.
Hang Lung, which held 56% of the company before the placement, sold secondary shares in the market before subscribing to the same amount of new shares at the same price.
The price was fixed at HK$16.30, or towards the bottom of the HK$16.25 to HK$16.75 range for an 8% discount to MondayÆs closing price of HK$17.72. This offering range represented a discount of 5.5% to 8.3%. The stock was suspended from 10am Hong Kong time yesterday, but did change hands at a HK$18.10 in pre-market auction trading, which gave a taste of the type of gains that could have been in store in the wake of a strong performance on Wall Street on Monday.
The Dow Jones Average Index ended up 1% and the Nasdaq Composite finished 1.5% higher.
The Hang Seng Index moved up by about 1.2% to touch a new intraday high of 19,161 points yesterday before retreating to finish virtually flat at 18,939 points amid speculation of more placements hitting the market. The Hang Seng Property Index, however, closed 3.3% higher, led by a more than 8% rally in Sino Land and a 3.8% gain in Henderson Land Development. And that was on the back of a strong run-up over the past month already.
Another clear sign of the demand for property stocks û especially those focused on Mainland China, was the strong performance by Hopson Development after it raised $128 million from a top-up placement on Friday. Even though that deal was priced at a 6.7% discount to the most recent close, the share price has rallied 8.5% in the two trading sessions since then.
Aside from the positive market backdrop, investors were also attracted by the chunky deal size, which accounted for no less than 86 days worth of daily trading volume based on the activity in the past three months. It was the third largest placement by a Hong Kongûlisted company this year after CNOOCÆs $1.98 billion sale in late April and Sun Hung Kai PropertiesÆ $1.01 billion offering on the eve of the global stock market correction in May.
Since the company hasnÆt raised cash in the primary markets since November 2004, it was a rare opportunity for investors to accumulate the stock in volume, which helped offset the fact that Hang Lung PropertyÆs share price is at an all-time high based on yesterdayÆs pre-market close of HK$18.10.
About 60% of the offering was bought by Asian investors, 25% went to offshore and onshore US investors, and the remaining 15% to Europe-based accounts.
Analysts are generally positive about the companyÆs aggressive expansion in China, which is expected to result in an earnings boost over the next few years. Hang Lung executive director Terry Ng said yesterday that the company has already spent HK$20 billion of the HK$25 billion to HK$30 billion that it has budgeted for capex in China this year, and felt now was the right time to add to its coffers to be prepared in case other investment opportunities pop up.
The placement propelled Credit Suisse to the top of the Hong Kong/China ECM league tables with $6.41 billion worth of league table credits, ahead of UBS with $6.04 billion, according to Dealogic. The investment bank, which was one of five joint bookrunners on ICBCÆs record-breaking IPO last month, is third for Asia ex-Japan after Goldman Sachs and UBS.