Equity deals in Hong Kong could build up in the coming few weeks after Hong Kong holding group PCCW sold a whopping HK$8.53 billion ($1.1 billion) of stapled units in its telecommunications unit HKT Trust at the weekend.
PCCW – controlled by Richard Li, son of Hong Kong's richest man Li Ka-shing – revealed Monday that it had sold an 11.1% stake in HKT Trust at HK$10.15 per stapled unit, reducing its shareholding to 52% from 63% before the transaction.
The shares were pitched at a range of HK$10.15 to HK$10.30 during the bookbuild late Sunday, or a discount range of 7% to 8.4% to HKT’s HK$11.08 share price close on Friday, according to deal terms seen by FinanceAsia.
One banker away from the deal said this was a defining transaction, potentially, for Hong Kong’s equity capital market due to its sheer size and the high-profile name involved, suggesting investors are still keen to put money to work after activity slowed in the second half of last year.
PCCW’s HKT block sale is the first billion-dollar secondary share sale in Hong Kong since American Insurance Group’s $1.25 billion selldown of PICC Property & Casualty in April last year.
HKT’s shares trade relatively frequently. Nonetheless, at $1.1 billion the transaction is equivalent to 83 times HKT’s three-month average daily trading volume, so it is not the easiest for the market to digest.
Large-scale selldowns by controlling shareholders can also create stock overhangs, although it remains to be seen whether PCCW would cut its stake below the 50% level. Shareholders of conglomerate PCCW approved plans to spin off part of HKT Trust back in October 2011.
PCCW appears, in part, to have overcome these challenges thanks to HKT’s decent business performance in the second half of 2016. In a statement on January 13, the company reported a 3% rise in revenue for the period as well as 24% year-on-year surge in earnings.
Analysts believe the synergies of HKT’s merger with CSL in 2014 are starting to reflect on its results and HKT units have outperformed the broader market, surging nearly 20% in price since the results announcement.
The HKT block trade was also supported by a relatively deep 8.4% discount and improving market sentiment, with Hong Kong’s benchmark Hang Seng Index edging towards an 18-month high amid a pickup in trading.
Together, these factors helped PCCW to execute the trade over the weekend – an increasingly common practice for Asian vendors to mitigate the market risks associated with week day trades. AIG’s PICC P&C stake sale and Telefonica’s selldown of China Unicom are among the deals executed this way last year.
The block trade has effectively increased HKT's free float by about 33%, potentially boosting its trading volume.
Following Sunday’s block trade and the sale of its UK broadband business earlier this month, PCCW has added $1.48 billion to its balance sheet and tripled existing cash holdings. That has sparked some speculation that PCCW may acquire external assets to bolster its media and information technology business.
PCCW said earlier this month that it plans to use the proceeds from the UK broadband business sale to develop businesses including over-the-top services and free TV services.
PCCW will be subject to a 90-day lockup on its remaining HKT stake.