The sale, which was arranged by ABN AMRO Rothschild, came on a day when Hong KongÆs Hang Seng Index plummeted 461 points, or 2.2%, suggesting conditions were less than ideal for a share placement û especially since Harbin itself closed at a record high on Monday after a strong run-up in the share price.
However, this proved to be a minor distraction as investors in fact welcomed the opportunity to buy the stock in size. The deal ended up about twice covered and, according to people familiar with the transaction, the quality of the orders was high since the market decline meant that only investors who really wanted the shares came into the deal. In all, about 40 investors were said to have participated.
The timing of the deal was largely dictated by the fact that Harbin received approval from the Mainland regulators to issue new H-shares on Friday last week (February 9). From the companyÆs point of view, this worked well. In the two to three months it has taken to obtain that approval, the share price has rallied more than 30% from around HK$7 to HK$8, allowing the company to significantly increase the amount of funds raised compared with what would have been possible back in November.
The shares sold in the placement equals 20% of the existing share capital, or the maximum a company is allowed to sell in any one year under the Hong Kong listing rules.
One observer noted that people are positive about ChinaÆs power sector and after being an underperformer for some time, Harbin has only recently started to play catch up with other power generators.
The company supplies these power producers with a broad range of electric power generation equipment for plants using a variety of fuels, including coal, thermal energy, steam and hydro power. Recently it has also announced its intention to start producing equipment for nuclear power plants to be able to benefit from a government plan to boost the countryÆs nuclear power generation capacity to 40 gigawatts by 2020. This will bring it to a level where it accounts for 4% of ChinaÆs total power generation capacity, up from 2% in 2006.
Harbin offered 112.59 million new shares at a 3%-6% discount to MondayÆs closing price of HK$10.50, equal to an absolute range of HK$9.87 to HK$10.18. They were priced just below the mid-point of that range at HK$10 for a 4.76% discount.
About 85% of the demand came from Asia with the remaining 15% generated out of Europe. In terms of type of investors, long-only funds were estimated to have contributed some 75% of the demand, while 20% came from hedge funds and 5% from retail brokers.
The initial plan was to do the deal after the close of trading on Monday when the company invited investment banks to bid for the transaction. However, by the time ABN AMRO Rothschild had clinched the mandate the bank felt it was a bit late to launch the transaction as a number of Asian accounts would already have gone home. It therefore decided to wait until the morning and request a trading suspension that would allow the deal to be completed during Hong Kong trading hours.
While the involved parties likely didnÆt expect the market to fall as much as it did, the gamble did paid off. The observer even suggested that the scaling back of placement orders could prompt some investors to buy shares in the market if the price falls back towards the $10 level when the stock resumes trading today, thus ensuring a certain degree of support even if the broader market stays weak.
In the six months to June, Harbin posted a 98% rise in net profit to Rmb355.56 million ($44.5 million) and a 60% improvement in revenues to Rmb11.7 billion. The gains were partly driven by increasing demand for power generation units with low energy consumption and high efficiency following a rise in raw material prices and a government requirement for companies to reduce their use of energy.