The total deal size of HK$902.4 million ($115 million) included a small portion (14.9%) of secondary shares that were sold by certain directors and members of the Luks family. The remainder of the cash will end up with the company through an ôold for newö share sale by the controlling shareholder.
The little-known company, which has been active in Vietnam since 1991, made headlines earlier this month when it announced a proposed cooperation with a unit of the Industry Department of Ho Chi Minh City within cement production and property development, which are the companyÆs two key focus areas.
Already in April there were signs that Luks was becoming a force to reckon with in the ôhotö Vietnamese market when the company reported a 794% rise in net profit in 2006 to HK$200.3 million (including property revaluation gains). Two separate non-deal roadshows in Asia and Europe around the same time also helped introduce the company to the broader investment community, which has been a key contributing factor to the share price more than tripling since early March.
While this has created a lot of interest in the company, it also meant that the placement was done at a high level and, despite a sizeable discount to the most recent market price, the book was only about 1.5 times covered, according to sources. At least 60 investors were said to have bought in - many of them after meeting with the company during the recent roadshows. Asian-based investors, who accounted for the bulk of the demand, displayed a lot of price sensitivity, although the book was covered when European investors started to come into the mix, sources say.
Accounts out of Europe and the US were more flexible with regard to the price and many of the orders from the US were submitted at the strike price. This allowed sole bookrunner Cazenove Asia to tighten the price towards the middle of the range late in the day. The placement was launched Tuesday morning (May 29) Hong Kong time after the stock was suspended from trading.
The price ended up being fixed at HK$12.80 after being offered in a range between HK$12.50 and HK$13.30. The final price represented an 11% discount to MondayÆs close of HK$14.38, which in turn was only 3% below the all time closing high of HK$14.78 from last week.
The total deal size comprised 70.5 million shares, or 13.7% of the company, which was slightly less than the initial plan to sell 73 million shares. The reduction didnÆt affect the companyÆs own fund raising, but was due to the fact that members of the Luks family decided to trim the number of shares they put up for sale to 10.5 million from 13 million.
The top-up placement saw controlling shareholder KT Holdings sell 60 million existing shares in the company, before subscribing to 60 million new shares at the same price. This will allow the company to raise $768 million ($98 million), which will be used to cover investment costs related to the cooperation with the Ho Chi Minh City government.
According to an earlier announcement, the two parties have proposed setting up two separate joint stock companies û JSC (Cement) and JSC (Property) û which they aim to list on the local Vietnamese stock market within three years. Luks will take a 45% stake in the cement company for $4.5 million and will pay $3 million for a 30% stake in the property company. The remainder will be held by CNS, a company under the local department of industry, which is active within industries, mechanics, electronics, food processing, investment and operations of infrastructure projects in Vietnam.
The cement company will invest in various cement projects in Vietnam, including a cement grinding factory with a capacity of 3 million tonnes per year and a new clinker production line of 1.25 million tonnes. The total investment cost for these projects, including the initial share capital of the joint venture cement company, is estimated at $76 million.
The property company will primarily focus on the conversion of industrial land into residential and commercial developments in Ho Chi Minh City. The plan is to develop at least 20,000 square metres of land for sale or rental per year over the next 10 years.
Analyst Wallace Cheng at 3V Capital says Luks is the only foreign company that has a license to operate cement businesses in Vietnam as a result of a license that it acquired about 10 years ago. And this puts it in a prime position to benefit from the countryÆs current cement shortage that is expected to last for at least another five years.
ôShould the two new joint stock companies be spun off, we see more value to be unlocked for Luks,ö says Cheng, who upgraded his target price for the stock to HK$16.45 in the wake of last weekÆs announcement. Despite the recent share price rally, the stock is still cheap at a 21% discount to its net asset value of HK$18.70, he argues.
Small brokerage 3V Capital, which primarily serves institutional clients and hedge funds in the US and Singapore, was a co-lead on the Luks share placement.
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