Lee & Man Paper placement revived

Citi replaces Deutsche Bank as bookrunner on the $80 million transaction and is able to significantly tighten the discount.
The placement of secondary shares in Lee & Man Paper Manufacturing, which was pulled by the seller earlier last week, was re-launched and completed on Friday at a much tighter discount, showing that investors can still be convinced to put their money to work. The total deal size increased slightly to HK$625 million ($80 million).

The final price translated into a 5% discount to ThursdayÆs closing price of HK$32.90, which compares with the 8.5% discount that sources say would have been the level on the initial placement three days earlier. That assumption is based on the fact that, on the first placement attempt, the bookrunner informed investors that the book was covered but that there was price sensitivity at the very bottom of the range. According to sources, the seller wasnÆt happy with that discount, however, and decided to withdraw the deal before it was actually priced.

Another interesting development is that FridayÆs successful placement was priced above the bottom of the range towards the mid-point. Lee & ManÆs initial placement, as well as the other two block trades for Hong Kong-listed companies that have taken place in the past week or so, have all been completed at the bottom of the price range. This has indicated that investors have remained very price sensitive even though the secondary market has fully recovered from the August correction.

Deutsche Bank, which was the bookrunner on the first placement attempt, was replaced by Citi for the Friday deal. Like several other banks, Citi approached the seller û a company called Gold Best that is owned by chairman Patrick Lee and his two sons who are also Lee & Man directors - after the first placement and managed to convince them that it could deliver a higher selling price than Deutsche was able to.

According to a company statement, Citi was awarded the deal after agreeing to buy the shares off Gold Best at a price of HK$31.80, which represented a 3.3% discount to ThursdayÆs close. However, the seller also had to pay a fee of no less than 2% to Citi, which means the bank still made a profit on the deal even though the shares were sold on to investors at a lower price of HK$31.25 apiece. The profit shrunk considerably though to about HK$1.5 million from an initial fee of HK$12.5 million (assuming the fee was 2%).

The 20 million shares were offered to investors in a range between HK$31.10 and HK$31.50, representing a discount of 4.3% to 5.5%. The Deutsche Bank-led placement earlier in the week was offered at a range of HK$30.20 to HK$31.80, equalling a discount of 3.6% to 8.5%, but took place against a closing price that was 10 Hong Kong cents higher than ThursdayÆs close.

Sources say about 25 investors bought into the smallish deal and the book built quickly. The offer was launched at about 10am Hong Kong time after the shares were suspended and by about midday investors were told that it was fully covered, which likely helped push the price off the bottom. With only a few exceptions, all the participating investors were Asian, which was perhaps partly a result of the fact that the deal closed at 4pm.

Lee & ManÆs share price has risen 72% this year, supported by healthy earnings and expectations that demand for containerboard will continue to rise. Its net profit improved to HK$1.01 billion ($129.5 million) in the year to March from HK$600 million in the previous 12 months. Sales increased by 36.6% to HK$5.16 billion.

The company continues to expand its production capacity and last month it began construction of its first paper and pulp mill in Vietnam, which will have an annual production capacity of one million tonnes of pulp and 1.5 million tonnes of different kinds of paper. The first phase will cost about $630 million and is scheduled to begin operations in October 2008.

Gold Best says the money raised from the placement will be used for investments into forestry resources. The deal accounted for 1.76% of the outstanding share capital and will see Gold BestÆs stake in Lee & Man fall to 61.7%.
¬ Haymarket Media Limited. All rights reserved.
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