minth-leads-wave-of-small-cap-placements

Minth leads wave of small cap placements

The Chinese auto parts maker raises $200 million after strong demand allows the deal to be upsized by 50%.
Chinese auto parts manufacturer Minth Group raised HK$1.56 billion ($200 million) late last week from a top-up placement that represented the largest among a string of equity fund raisings by Hong Kong-listed companies.

The deal, which was completed late Thursday, was increased by 50% from the intended size after several large investors in all three major regions expressed interest in buying a significant portion of the offering. This lifted the total deal size to 15% of the existing share capital, or 124.5 million shares. The initial offer consisted of 83 million shares.

ôThis is a stock that historically has been extremely illiquid so it made sense for them to sell more when the demand was clearly there,ö one observer says of the unusually large increase two hours into the bookbuild.

The deal was indeed a major liquidity event for the company. At the final size, it represented 62-days worth of trading volume based on the average number of shares that have changed hands each day over the past month.

The shares were offered in a range between HK$12.25 and HK$13 and priced at the HK$12.50 mid-point for a 7.4% discount to last ThursdayÆs record closing price of HK$13.50. The stock had hit an all-time intraday high of HK$13.80 earlier in the week.

The offering, which was jointly led by JPMorgan and UBS, attracted about 40 investors in total who were likely encouraged by the companyÆs strong position in its home market û it counts many of the multinational car makers operating within China as its customers û and by expectations that it will go out and acquire auto parts companies abroad. The latter could become a major earnings driver for the company, analysts say.

In a statement following the transaction, Minth said the net proceeds of about HK$1.52 billion will be used to increase its production capacity and sales both in China and in overseas markets. The expansion may happen through the addition of new research and development centres and production facilities or through mergers and acquisitions both in China and abroad, the company said.

According to the observer, Minth has strong technical expertise and a competitive cost structure that will allow it to buy loss-making entities abroad and turn them around.

ôThis is part of the story of China leveraging its low cost base with a view to going out and acquiring businesses that cannot make money in other parts of the world,ö he says.

The shares sold through the top-up placement were provided by chairman Chin Jong Hwa who is the controlling shareholder through holding company Linkfair Investments. He will now buy the same amount of new shares issued by Minth to ensure that the money raised will go to the company. As a result of the transactions, the chairmanÆs stake will fall to 44% from 50.6%. The freefloat will increase to 56% from 49.4%.

The placement came as the Hang Seng Index closed at a record high for the third straight session amid hopes that Mainland institutions, corporates and asset managers will be allowed to invest more money in overseas markets. Trading in Hong Kong as a redchip, Minth is seen to be one of many Hong Kong-listed, Mainland-linked companies that will benefit the most from such an increase in cross border investment flows as investors are already familiar with their businesses, and often also their management.

The Hang Seng Index continued to tick higher on Friday and ended the week at yet another fresh high of 22,531 points. Minth fell 3.7% to HK$13, but held above the HK$12.50 placement price throughout the session.

Aside from Minth, another seven Hong Kong-listed small-caps completed share placements last week, raising a combined HK$1.7 billion ($218 million). None of these shares sales exceeded $100 million and the largest among them was property developer China Velocity Group, which raised HK$615 million with the help of Cazenove.
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