The 17.1 million shares were offered at a fixed price of HK$150.55 a share, which represented a discount of 1.6% to ThursdayÆs closing price and at a 3.8% discount to CMBÆs offer price. Having bought a 53% stake in Wing Lung from the controlling shareholders, CMB will be making a general offering to the other shareholders as well at the same HK$156.50 a share price.
Thus it may have come as a bit of a surprise that one of Wing LungÆs largest shareholders decided to sell at a discount to that price. However, the discount isnÆt that wide and the share placement did allow the seller, who hasnÆt yet been disclosed, to monetise its holdings a few months ahead of the general offer, which is expected to close in October or early November. By selling now, when share prices are generally depressed, it may be able to re-invest the cash at a good price.
Because of the general offer, anyone buying the shares at FridayÆs discounted price is also guaranteed a profit, which would have helped attract hedge funds to the offering. There has been quite a lot of buying interest in Wing Lung since the Wu family signed the sale and purchase agreement with CMB on May 30 and the share price has gained 3.8% in a period when other mainland banks have been under pressure and the Hang Seng Index has dipped 7.9%. The shares held up well on Friday after the placement as well, falling only 0.1% to HK$152.80.
Sources say Morgan Stanley, which acted as the sole bookrunner for the placement, would have been well aware of who would be likely buyers before the launch of the deal and this enabled them to launch and complete it before the Hong Kong market opened on Friday. This is an unusual time for placements in Hong Kong-listed companies, which are normally done after the market closes. This year, there has been one other deal conducted pre-open û a $600 million secondary share placement in Cheung Kong (Holdings) which was done at a fixed 3.8% discount and arranged by UBS.
The short amount of time available to build a book before the opening would seem to increase the potential risk of failure û although the fixed price obviously limits the price risk û but with the current volatile markets it is possible that the seller wanted to see how the US market traded before it decided whether to go ahead or not.
Morgan Stanley opened the book at about 9am and sources say the entire deal was taken up very quickly. The marketing was highly targeted though, and it appears the shares were bought by a small number of investors û reportedly fewer than 10. Given the early hour, the buyers were all Asia-based.
Due to the size of the stake, the seller will have to disclose its disposal over the next few days, but based on shareholding data on the stock exchange website there are two likely candidates, which according to their latest disclosures held either slightly more or slightly less than the 17.1 million shares sold through the placement. The discrepancy would have been caused by buying or selling of shares in the market in the days right before the placement that hadnÆt yet been disclosed. One possible seller is Wings Investment Co, which is majority-owned by several Wu family members and, according to its latest filing, held 21.9 million shares. However, it would probably have been more obvious for Wings to use either Credit Suisse or UBS as the placement agent since these two banks were the advisers to the Wu family on the sale to CMB.
The other possibility is Penta Investment Advisers, which is owned by former Soros Fund Management trader John Zwaanstra. Penta held 16.3 million shares or a 7% stake in Wing Lung at the time of its latest filing in March.
CMB beat larger mainland rival Industrial and Commercial Bank of China (ICBC) and AustraliaÆs ANZ Bank to acquire the Wu familyÆs stake in Wing Lung after a three-month takeover battle. The agreed offer price of HK$156.50 a share is equal to an equity valuation of $4.7 billion and a price-to-book ratio of 3.1 times.