Mengniu shareholder exits amid a pickup in overnight deals

The company's share price holds up well following the $175 million placement, which was completed at a 6.25% discount.
With Chinese New Year just around the corner, the overnight activity in the equity capital markets is showing signs of picking up again. Three deals were in the market on Monday night and bankers say the work behind the scenes suggests a few more are likely to come before the end of the week.

One of the three was China Mengniu Dairy, which saw 65 million of its shares change hands through a block trade as an existing shareholder decided to exit the company. The stake was quite small, at just under 4.8% of the company, but according to a banker it might have taken several weeks to sell it through the market since the average daily trading volume in the stock is less than 5 million shares.

It is becoming somewhat more common that large shareholders, both individuals and institutional investors, choose to enlist an investment bank to help them offload stock to the market as it gives them certainty of execution. In January, a shareholder offloaded his remaining stake in Bank of China through Goldman Sachs, raising $182 million at a 1.7% discount to the latest market price. That deal accounted for no more than 0.1% of the company and less than one dayÆs trading volume.

The Mengniu trade was done at a 6.25% discount to the most recent close of HK$22.40 and raised HK$1.37 billion ($175 million) for the undisclosed shareholder, a source said. The deal, which was arranged by ABN AMRO Rothschild, was priced just below the mid-point of the HK$20.60 to HK$21.50 range at HK$21.00.

On the same night, IBM sold a 3.5% stake in Lenovo to raise $123 million and Reliance Communications issued a $1 billion convertible bond. Both those deals were covered by FinanceAsia yesterday.

By comparison, there were no overnight trades greater than $100 million in the Asian ECM markets last week as some stockmarkets eased off their highs. Observers say companies or investors who are thinking about booking profits may have decided to hold off while waiting for another upward push, but with less than two weeks left before the holidays there isnÆt that much time if one wants to make sure of getting the deal done.

The risk of waiting is that the markets will see an even greater correction from current levels as several Asian markets are still trading very close to record or multi-year highs. FinanceAsiaÆs FA100 index, which tracks the 100 most profitable blue-chips in the region, closed at 1,712 point on Monday, only 0.7% below its all-time high of 1,724 from January 2, while India and Singapore both booked fresh highs.

Lenovo and Reliance also closed at record highs before their respective deals were launched on Monday. Mengniu has eased off its peak of HK$25.90 from January 25, but at the time the shareholder decided to sell it was still up 26.5% from mid-December when it announced a joint venture with FranceÆs Danone.

The stock has also rallied 125% since the beginning of September, propelling its 2007 price to earnings multiple to more than 50 times, according to some analyst estimates. It has severely outperformed the 17.6% gain in the Hang Seng Index in the same period.

According to the source, the Mengniu placement was a little over one times covered with a couple of large orders and a bunch of small ones. The book was open for about three hours after the market closed.

The stock opened 6% lower at HK$21.05 yesterday, but edged higher throughout the session and finished down just 2% at HK$21.95 û well above the HK$21 placement price.
¬ Haymarket Media Limited. All rights reserved.
Share our publication on social media
Share our publication on social media