Lee & Man Paper bags $190 million from placement

The first share placement by a Hong Kong-listed company this year demands a 5.2% discount.
Lee & Man Paper Manufacturing last night raised HK$1.48 billion ($190 million) from a top-up placement that was upsized due to solid demand.

Despite the strong opening to 2007 in the local stock market, this was the first sizeable placement of new shares by a Hong Kong-listed company this year. Until now, all the placements have been in the form of sell-downs by existing shareholders, and it was unclear how the market would view this transaction.

The fact that institutional shareholders choose to take profits when share prices are at record highs is easy to understand, but when a company management decides that the time is right to raise fresh cash it often causes some concern that ôthe people in the knowö believe the share price doesnÆt have that much further to run.

The sale also came on a day when the Hang Seng Index finished at yet another record close of 20,821 points after adding 0.3% on the day.

Lee & Man, which is the second largest producer of containerboard in the Mainland after Nine Dragons, had seemingly no problems getting rid of its stock, however, although the price was fixed towards the wide end of the indicated discount range of 2.7% to 6.0%. According to observers this was partly a function of the high market price and partly because the offer was pretty chunky at around 48 daysÆ trading volume.

One observer noted that the deal should be beneficial for existing shareholders since it has the potential to boost the liquidity in the stock (the sale accounted for 27% of the free-float). Low liquidity often acts as a depressant on the share price as it makes it more difficult for large insitutions to buy the stock.

At present, Lee & Man turns over $4.2 million per day compared with $17 million for Nine Dragons and in terms of PE ratios, it trades at a more than 20% discount to its larger rival.

The Morgan Stanley-led deal was said to have been more than two times covered with close to 50 investors in the book, allowing the original offer size of 65 million shares to be expanded to 80 million. According to a source, the buyers were predominantly from Asia and the US.

The price was set at HK$18.50 for a 5.2% discount to WednesdayÆs close of HK$19.52. The shares had been offered in a range between HK$18.35 and HK$19. The placement accounted for 7.9% of the existing share capital and about 7.3% of the company as enlarged by the sale.

The stock fell 1.9% yesterday, but has more than doubled in the past 12 months from HK$8.90. It currently trades less than HK$1 below its all-time closing high of HK$20.50 from November last year.

The company told investors it will use the money for working capital and to expand its production lines in the region outside of China.
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