Hong Kong-listed Hopewell Highway Infrastructure (HHI) yesterday became the first company to adopt a dual-currency regime that will see its shares trade in both Hong Kong dollars and offshore renminbi. To achieve this, the company issued Rmb386.4 million ($61 million) worth of new shares denominated in the offshore Chinese currency through a placement.
Sure, the deal was small, but the demand was strong and the offering was upsized by more than 70% to 120 million shares from just 70 million at launch. The offering initially came with an upsize option of 20 million shares, but on the back of the good response the bookrunner went back to the issuer and asked for more shares.
According to a source, the base deal was fully covered in half an hour and ended about 20 times covered.
The bookrunner was said to have been wall-crossing investors on Monday and Tuesday so there was good anchor support when the order book opened at 9am yesterday. The buyers included long-only investors, including some QDII (qualified domestic institutional investors) out of China, high net-worth individuals as well as some global hedge funds.
About 15% to 20% of the demand came from Europe, while the rest was generated out of Asia. In all, more than 30 investors participated in the transaction.
At the final size, the deal accounted for about 4.1% of the issued share capital. The offshore renminbi-denominated shares will have a separate stock code (80737), but will be fully fungible with the company’s Hong Kong dollar-denominated shares. HHI trades under stock code 737.
Under the dual-counter regime, investors who own the company’s Hong Kong dollar-denominated shares will be able to convert them into offshore renminbi-denominated shares starting this Friday (October 26), should they wish to do so. And investors holding the renminbi shares can convert them into Hong Kong dollar shares from October 29.
The new shares were offered at a price between Rmb3.15 and Rmb3.29, which translated into a discount of 4.9% to 9% versus Monday’s closing price of HK$4.29 after adjusting for the exchange rate. The Hong Kong market was closed for a holiday on Tuesday and HHI was suspended from trading yesterday while the deal was completed.
The price was fixed at the mid-point of the range at Rmb3.22 for a 6.9% discount.
The order book was kept open until 5pm to give European investors a proper chance to take a look at the deal. BOC International was the sole bookrunner.
Interestingly, HHI, which builds and operates expressways, tunnels and bridges in China’s Pearl River Delta region, was also the first Hong Kong-listed company to issue a corporate bond in offshore renminbi back in June 2010 when it raised Rmb1.4 billion. That market has since taken off massively.
HHI said in a statement that in view of the strong market interest for the its shares and for renminbi investment products, it believes the placement represents “a good opportunity to raise capital in renminbi under the new renminbi-trading counter introduced by the stock exchange for existing listed companies."
Since its operations focus on China and its functional currency is renminbi, it is beneficial to raise long-term capital in renminbi for the development of its projects, the company added. The proceeds will be used for general working capital.
HHI is a 68.1%-owned subsidiary of Hong Kong-listed Hopewell Holdings, which is controlled by Gordon Wu. Aside from highway infrastructure, the parent is also involved in property investment and development, power, hotels and the hospitality sector.
CapitaRetail China Trust
Separately, CapitaRetail China Trust, a Singapore-listed real estate investment trust (Reit) that focuses on retail properties in China, was also in the market last night with a small follow-on share sale.
The trust raised S$86.1 million ($70 million) after the deal was upsized by 14% to 57 million units from 50 million at launch.
The price was fixed slightly above the bottom of the indicated range at S$1.51 for a discount of 5.8% versus the yesterday’s adjusted volume-weighted average price (VWAP) of S$1.6029. The VWAP was adjusted for a dividend of 3.22 Singapore cents per unit, which will be paid to existing unitholders only.
The new units, which at the final size accounted for 7.6% of Reit, was offered at a price between S$1.49 and S$1.54. That equalled a discount of 3.9% to 7% versus the adjusted VWAP. Based on yesterday’s closing price of S$1.64 the adjusted discount was 6.1%.
As with many other Singapore Reits offerings, there was good support from existing unitholders and a few investors with small positions before this deal came in with big orders, according to a source. About 35 investors participated in all and the order book was described as very “long-only heavy”.
Although small, the deal shows that there is still interest among investors to gain exposure to the commercial real estate sector in China. This is encouraging, particularly after the $777 million Singapore IPO of Dynasty Reit was cancelled earlier in the evening. While the latter is significantly larger, the two trusts are active in largely the same sector.
CapitaRetail China wasn’t raising money towards any particular acquisition, so the deal isn’t immediately revenue or dividend accretive, but the management has previously said that it sees opportunities and investors are generally expecting it will announce something soon. The unit price has risen 15% since mid-September, partly on the back of a strong performance by its portfolio assets, and is up 43% since the beginning of this year.
J.P. Morgan was the sole bookrunner for the CapitaRetail China placement.