Li & Fung raises $504 million from top-up placement

The Hong Kong sourcing company pulls off Asia's second largest follow-on this year. Meanwhile, an existing shareholder sells $58 million of shares in Indonesia's Media Nusantara Citra through a clean-up trade.
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Bullseye, the mascot for the Target retail chain (AFP) </div>
<div style="text-align: left;"> Bullseye, the mascot for the Target retail chain (AFP) </div>

As more companies are releasing their 2011 earnings, the list of companies lining up to take advantage of the strong start to the year in the secondary markets is growing. The latest in the row is Hong Kong-listed sourcing company Li & Fung, which last night raised HK$3.91 billion ($504 million) from a top-up placement.

The deal is the second-largest follow-on capital-raising in Asia this year, outside China’s domestic A-share market. The largest is Minsheng Banking Corp’s $1.44 billion H-share placement that was completed just 24 hours earlier.

Li & Fong hasn’t tapped the equity market since May 2009, but it is easy to see why it is choosing to do so right now. With more than 80% of its revenues generated from the sourcing of products for US and European companies, including big retail chains like Walmart and Target, it is a key beneficiary of the recent improvement in the economic data out of the US. Its share price has risen 36.5% so far this year and is approaching the record high of about HK$25.50 (adjusted for a two-for-one share split in May last year) that it recorded in January last year.

In its 2011 earnings that were released last week, Li & Fung said it had gained market share in the past year from a combination of organic growth and acquisitions. Revenues increased by 26% to $20.03 billion, which in turn helped boost net profit by 24% to $681 million.

And investors were happy to invest more money in the company, which is viewed as one of the top blue-chips in Hong Kong, particularly outside the property sector. According to a source, the deal came together quite quickly and was fully covered 45 minutes after launch. When the books closed after about 4.5 hours, it was covered across the price range and multiple times covered at the final price, which was fixed slightly below the mid-point for a 5% discount. More than 120 investors submitted orders, making it one of the largest order books this year after the $6 billion block trade in AIA, which supposedly attracted about 270 accounts.

The company offered 210 million shares, or about 2.6% of the share capital, at a price between HK$18.52 and HK$18.82. The price range translated into a discount of 4% to 5.5% versus yesterday’s close of HK$19.60. The stock hit a 2012 closing high of HK$19.86 last Friday, making this a good time for the company to raise funds.

But investors seemingly thought the price range was reasonable for a deal that accounted for just over 10 days of trading volume and joint bookrunners Goldman Sachs and HSBC were able to fix the price at HK$18.62, resulting in a 5% discount. This is slightly tighter than the 6% the company achieved when it last came to market almost three years ago to raise $350 million, although at that time the overall market was still weighed down by the effects of the global financial crisis.

As usual for an Asian deal the demand was led by Asia-based accounts, but the source said it attracted high-quality investors from all regions. As of early this morning, there were few details on the order book except for the fact that it contained a mix of long-only investors and hedge funds.

Li & Fung said it will use the money raised for general working capital and to fund its future business developments, including potential acquisitions. It didn’t mention any particular acquisitions that it may have in mind, but the company, which is controlled by brothers Victor and William Fung, has a history of successful acquisitions behind it, which should make investors comfortable enough to help the company beef up its war chest to be ready for the next opportunity that comes along.

The company tends to be particularly active on the acquisition front at times of uncertain economic conditions, arguing that this is when excellent deals are available at attractive prices. In 2011, it completed 19 deals, which together added about $2 billion of annualised revenues and $211 million of core operating profit.

Media Nusantara Citra
Separately, an existing shareholder of Indonesia’s largest media company, Media Nusantara Citra (MNC), yesterday evening raised Rp540 billion ($58 million) from the sale of its remaining 2.2% stake in the company. This deal too was said to have been multiple times covered and was priced just below the mid-point of the range for a 6.7% discount.

The seller, a company named Winfly that was described as a vehicle owned by an Indonesian family, offered 300 million shares at a price between Rp1,750 and Rp1,860, which translated into a discount of 3.6% to 9.3% versus yesterday’s closing price. The final price was fixed at Rp1,800.

This stock too has had a good run so far this year and on March 16 finished at its highest level (Rp1,950) since its IPO in 2007. Since then it has pulled back slightly, but as of yesterday it was still up 47.3% year-to-date. It has more than doubled from its IPO price of Rp900.

However, investors and analysts still see high growth potential for the company as the Indonesian economy, and consumer spending in particular, continues to grow. MNC owns three national free-to-air TV broadcast networks, including RCTI which is the country’s most popular free-to-air network, and publishes Indonesia’s third largest daily newspaper, Seputar Indonesia. It is also active in radio, internet, pay-TV and talent management.

A source said the offering attracted a combination of long-only international and domestic investors, and also saw good participation from hedge funds. There was no information of the international/domestic split, but the source said it was a very global order book and most of the shares would go to international investors.

CLSA was the sole bookrunner for the transaction.

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