Less than two months after its previous sell-down, John Swire & Sons last night sold the remainder of its directly owned shares in Hong Kong-listed Swire Properties, raising HK$4.88 billion ($630 million).
The sale came as a surprise since the shares in question were supposed to be locked up until mid-November. However, the bookrunners on the previous trade decided to waive the rest of that three-month lockup following reverse inquiries from a few investors and after the share price had recovered to trade a touch above the level where it was before the previous deal.
Because it was widely expected that UK-headquartered John Swire & Sons would sell the rest of its direct stake, there was an overhang on the stock and sources said investors were generally happy to see that removed — even if it meant breaking the lockup. The fact that many investors who participated in the previous transaction came into this deal as well, suggests that this was indeed the case.
At the same time, investors who didn’t buy last time, because they thought the stock was too illiquid or because they worried about the effect of the overhang, did submit orders in the clean-up trade last night. And they did so even though the discount was much narrower than in the August 13 transaction. As a result, the order book was multiple times covered and significantly larger than last time. In all, more than 140 accounts came into the deal, compared to more than 90 last time.
The deal comprised about 217 million shares, which represents 3.7% of the company. John Swire & Sons, which is the main investment vehicle of the Swire family, will not own any shares directly in Swire Properties after this deal, but will still have an indirect interest in the property developer through its controlling stake in Swire Pacific. The latter owns 82% of Swire Properties following a spin-off and listing by introduction in January this year.
The shares were offered at a price between HK$22.51 and HK$23.23, which translated into a 3% to 6% discount versus yesterday’s closing price of HK$23.95. The price was fixed at the bottom of the range for the maximum 6% discount, but this was still well below the 10% discount that the seller had to concede last time. According to sources, the tighter discount was justified partly because it was a clean-up trade that removed an overhang, but also because the stock has become significantly more liquid since the previous transaction.
Indeed, while the August deal, which accounted for 4% of the company and raised $647 million, was equal to about 130 days of trading volume, this one represented “just” 53 days, based on the one-month daily average turnover. As a result of the placement last night, Swire Properties’ free-float will increase to 18% from just 10.3% before the August transaction.
There has been some speculation in the market that the greater free-float may result in Swire Properties being included in the MSCI Hong Kong index. This may have contributed to the interest in the deal.
According to sources, the buyers comprised property specialists, long-only investors and hedge funds and also included many existing shareholders. Despite the thinner discount, hedge funds actually featured more prominently in this second deal, which was probably due to the improved liquidity in the stock. While the deal was covered less than an hour after the launch at 5.30pm Hong Kong time, the bookrunners kept it open until 8.30pm to give US investors a chance to have a look — particularly those US accounts that took part in the August transaction.
Some US-based real estate funds came in and the demand was well spread geographically, although it was still overweight Asia.
Swire Properties’ share price never fell below the August placement price of HK$21.46, but continued to edge lower after the deal, hitting a low-point of HK$21.75 on September 5. Since then it has gained 10% and yesterday’s close of HK$23.95 was ever so slightly above the HK$23.85 where it traded immediately before the August deal. The stock has gained 39% since it closed at HK$17.26 on its first day of trading in January.
As noted, Swire Properties listed through an introduction, meaning it didn’t sell any shares in connection with the listing. Rather, Swire Pacific distributed about 18% of the shares in the property unit on a proportional basis to its own existing shareholders free of charge. This was how John Swire & Sons ended up with a direct ownership of about 7.7%. The remaining 10.3% went to other shareholders and was regarded as the free-float.
Swire Properties focuses primarily on the development of mixed-use commercial properties and it is a large operator of retail and office space in both Hong Kong and China. Its portfolio also includes a number of hotels.