Minsheng Bank raises $1.44 billion from H-share placement

The Chinese lender beats a number of other financial sector issuers expected out of China this year. Also in the market yesterday was Far East Horizon, which sold $371 million of new shares.
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Minsheng Bank Building in Wuhan
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<div style="text-align: left;"> Minsheng Bank Building in Wuhan </div>

More than a year after Minsheng Banking Corp announced that it planned to replenish its capital base through the sale of H-shares and A-share convertible bonds, the Chinese bank was finally able to complete the first part of the plan yesterday. The bank raised HK$11.2 billion ($1.44 billion) from a placement of new H-shares, making use of the first opportunity to hit the market after getting regulatory approval for the sale.

Minsheng received approval from the China Regulatory Securities Commission for the H-share sale on February 22, but was then in a blackout period ahead of its full-year earnings. Once the earnings were released last Thursday, it was finally free to do the trade.

Another issuer to that took advantage of the end of the blackout period was Far East Horizon, a Chinese equipment leasing company that posted a good set of results on Wednesday last week. This was the company’s first return visit to the equity capital markets since its IPO in March last year and it was able to raise HK$2.88 billion ($371 million) after fixing the price at the bottom of the price range for a 9.1% discount.

Given how well-flagged the Minsheng transaction was, investors had had plenty of time to position themselves for the deal and, according to stock exchange data, the short-selling volume in the stock has spiked recently. However, the H-share price has still held up well and is currently up about 6.7% so far this year. It has gained 67% from the 2011 low in early October.

The shortselling, in combination with the fact that Minsheng is one of the cheapest Chinese banks in terms of price-to-book valuation, meant the deal wasn’t too tough a sell despite that large size and the bookrunners were able to go out with a “books covered” message yesterday morning.

Perhaps taking a lead from the successful AIA block trade earlier this month, which got a head start as the banks secured commitments to participate from a number of investors during the weekend before launching the deal on Monday morning, the bookrunners on this deal chose to actually launch the Minsheng offer at about 10pm Sunday evening Hong Kong time. The timing seemed odd as many regional fund managers had just spent the weekend at the Hong Kong rugby sevens and didn’t seem in a rush to get back to work, but the move allowed the banks to approach a number of overseas funds that had previously expressed an interest in buying the stock as soon as the deal opened, and by the time Asian investors got in to work yesterday morning there was already good momentum in the book.

Minsheng was suspended from trading both in Hong Kong and Shanghai yesterday while the sale was being completed, and Far East Horizon was halted in Hong Kong, allowing that transaction to launch just before 9am in the morning. Both deals closed at about 7pm Hong Kong time. Interestingly, UBS was a bookrunner for both deals. On Minsheng the Swiss bank was joined by Haitong International, but it did Far East Horizon on a sole basis, beating the other three IPO bookrunners (CICC, HSBC and Morgan Stanley) to the punch.

According to sources, the Minsheng offering attracted around 100 investors, including both existing shareholders and investors that were new to the stock. In terms of the type of investors, long only funds, hedge funds, China-focused funds and some wealth management accounts were all represented.

The Chinese private-sector lender sold approximately 1.65 billion new H-shares, which accounted for 40% of the H-share capital, or 6.2% of the overall bank, including A-shares. The shares were offered at a price between HK$6.65 and HK$6.86 apiece, which translated into a discount of 4% to 7% versus Friday’s close of HK$7.15.

The final price was fixed above the mid-point at HK$6.79 for a discount of 5%.

At the final size, this is the fourth largest ECM transaction in Asia this year after AIG’s $6 billion sell-down in AIA, the Indian government’s $2.57 billion sell-down in Oil and Natural Gas Corp and Citi’s $1.9 billion exit from India’s Housing Development Finance Corp.

Aside from these big trades, the primary market has been quite tough so far this year, causing many potential issuers to linger at the sidelines while hoping for a slightly better window in the second quarter. However, Minsheng likely made the right call to get the deal out the door as soon as it got the regulatory approval since there is a series of financial sector equity issues expected out of China this year as the country’s banks are trying to strengthen their balance sheets to comply with new capital restrictions.

Just over a week ago, Bank of Communications (BoCom), announced plans to raise up to Rmb56.6 billion ($9 billion) from a combined sale of new A- and H-share in what could be one of the world’s biggest share sales this year. The deal, which analysts say will make Bocom the country’s best-capitalised bank, will be done through a private placement involving a dozen institutional investors, including HSBC.

Industrial Bank, which is part-owned by Hang Seng Bank, is planning a private placement of A-shares to raise as much as Rmb26.4 billion, according to a statement earlier this month, while China Everbright Bank, China Guangfa Bank and China Merchants Bank are all aiming to tap the international equity markets this year.

Minsheng Bank is still awaiting approval for its A-share CB, which according to earlier statements could raise the equivalent of $3.2 billion.

As of the end of last year, Minsheng’s tier-1 capital ratio stood at 7.75%, which is below the 8.5% required by the new capital regulations. Barclays estimated in a research note issued at the end of last week that the bank’s tier-1 ratio could improve to 8.7% following the H-share sale. Minsheng’s net profit gained by a better-than-expected 59% to Rmb27.9 billion, which it attributed to strong growth in both net interest income and fee income as well as a control on spending.

Far East Horizon
While also in the financial sector, Far East Horizon doesn’t have to comply by the same capital restrictions as banks and hence is not under the same kind of pressure to raise funds. According to a source, it will use the money raised from yesterday’s placement to fund its ongoing growth. Far East Horizon provides financing solutions and equipment leasing for a variety of industries such as healthcare, printing, education, infrastructure construction, shipping and machinery.

The company offered 450 million shares, or 15.8% of its existing share capital. There was also an upsize option of up to 118.48 million shares, which could have boosted the total deal size to the maximum 20% that the company can sell without seeking additional approval from its shareholder. However, a source said this wasn’t exercised.

The shares were offered at a price between HK$6.40 and HK$6.53, which translated into a discount of 7.2% to 9.1% versus Friday’s close of HK$7.04. As noted, the final price was fixed at the bottom for the full 9.1% discount.

Sources said the bookrunners had good visibility on a large portion of the base deal before launch with most of that interest coming from Asia-based long-only funds, complemented by a few fundamentally-focused hedge funds. Far East Horizon was one of the few IPOs last year that actually made money for investors and supposedly there was good demand from existing shareholders who wanted to add to their holdings. The stock is fairly illiquid and the deal was seen as a good opportunity to buy more shares without moving the share price.

There was also some interest from index funds following an announcement earlier this month that the stock will be included in the FTSE China index. In all, close to 50 accounts were said to have participated in the transaction.

Far East Horizon’s share price took a beating in August and September last year along with most of the rest of the global equity markets, but has recovered a bit more than half of those losses. Before yesterday’s sale the stock was up 11.9% versus the IPO price of HK$6.29.

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