New World Development (NWD) and Li & Fung were the centre of activity in Hong Kong yesterday (Wednesday), with $388 million raised from two placements.
Both deals had been well flagged. Anglo American, which sold a 4.6% stake in Li & Fung, had been waiting for the end of a three-year lock-up in order to dispose of its remaining shares in the trading company. So too, the market had been expecting a placement by NWD following Henderson Lands opening shot from the sector a couple of weeks ago.
Goldman Sachs was lead manager of the Li & Fung deal, which raised $228 million following the sale of 134.5 million shares. Having been marketed at HK$13.15 to HK$13.25 per share, the deal was priced at HK$13.20, representing a 5.4% discount to the stock's HK$13.95 close and 26 days trading volume.
The transaction was executed via an accelerated bookbuild, with books closed shortly after they were covered. A total of 40 investors participated.
Selling a relatively large deal at such a tight discount was something of an achievement and particularly in light of the stock's current valuation. Li & Fung is presently trading at about 30 times 2003 forecast earnings compared to a five-year average of roughly 20 times. However, a number of houses believe the stock has further upside, with consensus price targets around the HK$14 to HK$14.5 level.
This is based on a positive view of the US economy to which the stock is closely correlated. Analysts say that about 70% of sales are derived from the US and virtually all of the rest from Europe. The company is primarily a supply chain manager, sourcing goods from developing economies and on-selling them to OECD ones.
So far this year, it has outperformed the Hong Kong market, having risen 88.51% year-to-date, although it is slightly off last week's high of HK$13.95. Mining company Anglo American is also likely to be pleased with the result since it has secured a tighter discount this time round than the 7.5% it achieved from its last placement in September 2000.
NWD pursued a similar strategy to Li & Fung, using an accelerated bookbuild for its UBS led offering. The property developer raised $160 million from a 250 million share deal that was priced at HK$5 per share.
This represented a 7.4% discount to the stock's HK$5.40 close, similar to the 7% achieved by Henderson Land, albeit via a larger $388 million transaction led by HSBC. In line with other second tier property stocks, NWD was also down a further 3.5% on the day ahead of pricing.
The deal comprised a top up placement, whereby the controlling shareholder, Chow Tai Fook, subscribed to an equal number of new shares. As a result of the deal, the family will see its stake reduced from 37.45% to 33.66% and the company's share capital expanded by 11.33%.
The deal is said to have closed one-and-a-half times covered with participation from 48 accounts. Year-to-date, the stock is up 37% and has veered from a low of HK$2.30 at the height of SARs to a high of HK$7 just last week.
Proceeds are being used to reduce the company's $1.48 billion debt position and analysts believe that the stock may be poised to re-bound further as a result of extensive restructuring and provisioning, which will set NWD off on a new footing.
The whole New World group completed its re-organisation in February this year and NWD recently reported a net loss of $615 million as a result of an equal number of provisions against its Hong Kong property assets, Chinese property assets and telecoms businesses. The group is currently trading at a 69% discount to Net Asset Value.