Newbridge exits Ping An as stock emerges from two-month suspension

The private equity firm raises $1.2 billion at a tight 1.2% discount after Ping An strikes a deal to increase its stake in Shenzhen Development Bank to above 50%.

Investors had been expecting Newbridge to sell its remaining shares in Ping An Insurance (Group) soon after the shares were to start trading after a lengthy suspension and they didn’t have to wait long. Just half an hour after the end of trading yesterday -- the first session after the suspension was lifted -- a request for a deal proposal was sent out to investment banks and shortly afterwards a deal was announced.

Newbridge took the chance to cash out after the stock closed 2.7% higher, having risen as much as 7.5% intraday, following the announcement late Wednesday that Ping An will increase its stake in Shenzhen Development Bank (SDB) to 52.39% from 29.99% through a deal valued at Rmb29.1 billion ($4.32 billion). Most of the payment will, however, be covered through the transfer of Ping An’s 90.75% stake in Ping An Bank to SDB, meaning the insurance company will only have to come up with approximately Rmb2.69 billion ($394 million) in cash.

Ping An had been suspended since June 30 pending the announcement of the deal, which meant that Newbridge was unable to sell its remaining shares when a two-month lockup expired in mid-July. The private equity firm, which is a subsidiary of US-based TPG, received the Hong Kong-listed Ping An H-shares as payment when it sold its 4.7% stake in SDB to the Chinese insurer in early May and was never expected to keep them. In fact, it sold just over half the stake through a placement within a week of taking ownership of the shares, raising $1.25 billion.

Last night’s placement was smaller in terms of number of shares, but thanks to a rise in the share price following the first sell-down and a tight 1.2% discount to yesterday’s close, Newbridge was still able to raise HK$9.08 billion ($1.2 billion).

The seller offered all of its 139.1 million remaining shares, which equalled 4.9% of the H-share capital and about 9% of the freefloat. The price was set in a range between HK$64.68 and HK$65.30, which represented a discount of just 1.2% to 2.1%. This was significantly tighter than the 4.6% discount that it achieved in the May placement, but sources said the good reception to the SDB acquisition – both in the market and among analysts – together with a strong first-half earnings report that was released during the suspension, and the fact that 25 of 29 analysts have a “buy” on the stock (the rest recommend investors to hold), did support a tight pricing.

According to sources, there were also some reverse inquiries from global investors while the stock was halted, which would have provided some additional confidence that a deal of this size could actually get done at such an aggressive level. Morgan Stanley won the mandate following a bid to deliver a deal at a discount of just over 2%.

And it appears the bank was right as the deal was covered within an hour, prompting it to go out with a message that the price would be fixed in the upper half of the range. When the order books closed after less than two hours, the subscription ratio had increased to more than three times and demand was strong across the range. Consequently, the price was fixed at the top at HK$65.30 for a discount of 1.2% versus yesterday’s close of HK$66.10. Given the sharp rise in the share price early in the day, the volume-weighted average price was slightly higher at HK$67.01, which meant the discount versus the VWAP was a slightly less aggressive 2.6%.

Over the past 12 months, Ping An has traded as high as HK$75.60 (in November 2009) and in light of the SDB acquisition, it is not too far-fetched to believe that there is room for further gains from today’s levels if the deal receives the necessary approvals from regulators and shareholders.

In an announcement to the Hong Kong stock exchange, Ping An said the fact that it will get a majority stake in SDB will allow for greater synergies between SDB and Ping An Bank and contribute to a more balanced development of its three major segments, namely insurance, banking and investment. It will also significantly increase its cross-selling capabilities and accelerate Ping An’s strategic objective to become a financially integrated international leader, it said.

Meanwhile, analysts noted that because Ping An Bank is injected into SDB at a price that is equal to the preliminary valuation of the unit, this is a very “inexpensive way” for Ping An to gain control of a much larger bank – SDB is about three times the size of Ping An Bank and has a nationwide branch network.

The buyers of the placement comprised a decent mix of hedge funds and long-only funds. The demand was skewed towards Asia, but included large global mutual funds – the kind of demand that bankers refer to as high-quality and “sticky”. More than 100 investors participated in the transaction.

¬ Haymarket Media Limited. All rights reserved.
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