While the Credit Suisse-led deal met with good demand among primary market investors, it is bound to cause some disappointment among existing Hopson shareholders given that it comes only six weeks after the Tiger Fund sold half its stake through a similarly sized placement.
The share price dipped after that sale and has been slow to recover despite a surge in the share price of other Mainland developers in recent weeks. However, in the three days just before last FridayÆs (November 3) placement the stock rallied 10.7% to ThursdayÆs close of HK$17.80, meaning it was finally closing in on the HK$18.18 finish recorded on the eve of the previous sale.
According to market watchers, that recovery could run the risk of being interrupted again as a result of the latest sale, which was priced at a 6.7% discount to ThursdayÆs close. Unusually for a Hong Kong placement, the deal was launched in the early morning Friday and completed during Hong Kong trading hours, while the stock was suspended.
The risk of the market yet again being slow to absorb the trade is compounded by the fact that the stock is quite illiquid with FridayÆs transaction accounting for about 35 days worth of trading volume. According to one source, among the key reasons for the sale was a desire by the management to increase the free float and liquidity of the stock and to boost the number of shareholders.
As a result of this transaction, which accounted for 4.9% of the existing share capital, the free float will improve to about 34% from 30%.
The deal was done through a top-up placement, meaning an existing shareholder sold secondary shares in the market and then subscribed to the same amount of new shares at the same price, leaving the company to pocket the proceeds. According to the term sheet, the money will be used to finance residential property developments.
The offer comprised 60 million shares that were offered in a range between HK$16.30 and the final price of HK$16.60. The price range represented a discount of 6.7% to 8.4% versus ThursdayÆs close and was set just above HK$16.25 where the September 21 placement was priced.
The previous sale, which totaled about $104 million and was also arranged by Credit Suisse, was carried out while the stock was trading (which was possible because the block consisted of all secondary shares) and completed against a backdrop of the share price tumbling 6.9% on the day. So, while the sale was officially priced at a 3.96% discount to that dayÆs close, the discount versus the last finish before the deal was launched was a much heftier 10.6%.
The stock fell another 11.9% over the next five sessions to a low of HK$14.90 before resuming the upward trend. Given that the discount is narrower this time around, chances are the share price will hold up somewhat better when the stock resumes trading today, argues one market watcher.
The order book for last FridayÆs trade was already well covered by the time it closed for Asian investors at noon Hong Kong time, and after allowing European investors to have a go the order amount swelled further to about 10 times the number of shares on offer, sources say.
The final order book contained more than 80 names, including some existing Hopson investors who chose to top up their holdings. However, the offer also attracted a number of new names. According to the source, about 45% of the deal went to Asian investors, while US offshore accounts bought 40% and European investors took 15%.
Part of the attraction, analysts noted is HopsonÆs ability to maintain the pace of unit sales even in the wake of the austerity measures announced in May and June. At the time of its interim earnings in mid-September, the company said it had presold almost 80% of its 2006 completions and over 20% of its 2007 completions.
Macquarie Securities, which has an ôoutperformö rating on the stock, also noted that the company has bought another five pieces of land û mainly in primary cities - boosting its land bank to 14.7 million sqm. This could last for seven years of development, the bank said.
Macquarie has a target price of HK$20.03 on the stock, which is in the lower half among the six analysts who cover Hopson, according to Bloomberg Data. The target prices range from HK$19 to HK$22 and all six analysts following the company has a buy or outperform rating on the stock.
Despite the slow recovery, HopsonÆs share price is still up 87% so far this year, compared with 26% for the Hang Seng Index. However, the gains may have been even greater had it not been for the interruption of the first block trade. In the three weeks to last Thursday, Guangzhou R&F Properties has surged 37%, Shanghai Forte Land has gained 30% and Agile Property Holdings is up 22%. In the same period, Hopson has added a mere 9.9%.
Year to date, Guangzhou R&F has risen 104%, Agile is up 90% and Shanghai Forte is 35.5% higher.