New World exits investment in China Everbright International

NWS Holdings last night sold its entire remaining stake in China Everbright International, a company involved in the management of various environmental protection projects, raising HK$708.8 million ($91 million). The sale came after the Hong Kong stock market shook off the decline over the past couple of days and gained 1.25%. China Everbright International also gained 2.4% on the day, adding to an already strong performance over the past month.

The seller, which is the infrastructure and services flagship of the Chen Yu Tung’s New World Development Group with businesses ranging from roads, water and ports projects to city bus and ferry services, offered all its 173.298 million shares, representing a 4.8% stake in China Everbright International, at a price between HK$4.06 and HK$4.12. The price range implied a discount of 3.3% to 4.7% versus yesterday’s close of HK$4.26.

A source said the deal was covered in about 30 minutes, but the books were kept open for three hours to give China Everbright International’s many European investors a chance to look at the deal. In the end the block was about three times covered and attracted some 40 investors, including Tier 1 long-only funds and alternative asset funds. Most of the buyers came either from Hong Kong/China or from Europe and the UK.

However, some of these high-quality buyers were not interested in buying at just any price, and the source noted that there was price sensitivity around the mid-point of the range. And that’s also where it ended up pricing – at HK$4.09 for a 4.0% discount.

Some price sensitivity was perhaps not surprising given that the stock has run up 18.3% in the past month, compared with an 8.2% gain in the Hang Seng Index at the same time. The block was also in the market when China unexpectedly hiked interest rates last night, setting off a decline in commodity prices and a dollar rally, as well as an expectation that Chinese stocks will come under pressure today.

China Everbright International is also not the most liquid stock and based on the daily trading volumes over the past month, last night’s transaction accounted for some 18 days worth of trading.

Analysts are positive on the company, whose businesses are split into several areas such as environmental water, environmental energy and alternative energy. It also owns 80% of a toll bridge in China as well as a handful of property investment projects both in Hong Kong and the Mainland. Investors are said to be particularly enthusiastic about its recent focus on alternative energy, which includes methane-to-energy projects, a straw cogeneration project, a biomass power generation project and even a solar project. Of the 13 analysts who cover the stock, according to Bloomberg, 12 have a buy on it.

NWS Holdings, which held the shares through a wholly-owned unit under the name of NWS Financial Management Services, has been a long-term shareholder in China Everbright International, but after a new share placement by the latter in September 2009 its stake fell below 5%. Since then it appears to have sold a small portion of its holdings in the open market, reducing its stake from 4.93% to 4.76%. But given the somewhat thin trading volumes it was probably a smart decision to use the capital markets to offload the entire stake at once.

The block trade was arranged on a sole basis by BOC International, which outbid at least three other banks for the privilege.