Orascom has been a strategic shareholder in HTIL since it bought a 19.3% stake in the Hong Kong-listed mobile and fixed-line operator in December 2005. The two firms said at the time they would seek to cooperate within a number of areas, including the procurement of network equipment, software and information technology as well as on international roaming and transmission costs. Orascom also has two seats on the HTIL board.
Both companies provide mobile telecom services with a specific focus on emerging markets with large populations and low mobile penetration rates. HTIL also operates a fixed-line network in Hong Kong and was the first operator to launch 3G mobile services in Hong Kong and Israel.
YesterdayÆs sale represents about 3% of HTILÆs outstanding share capital and will reduce OrascomÆs stake to 16.2%, according to sources.
The 143.4 million shares were offered in a range of HK$10.70 to HK$10.95, which represented a 3.1% to 5.3% discount to yesterdayÆs close of HK$11.30. After a short bookbuild of only 2.5 hours û to make sure the deal was done and dusted before HTILÆs ADRs started trading in New York û the price was fixed at the bottom of that range at HK$10.70. Citi acted as the sole bookrunner.
A source said there was some price sensitivity at the final price level among some of the long-only funds that came into the deal, but the discount was still at the low end of what has been achieved on other placements and block trades for Hong Kong-listed companies over the past six weeks. Since the end of the August correction, only three out of 13 deals (above $100 million) have priced at a tighter discount than 5%.
These included a CLSA-led $220 million top-up placement for Shun Tak Holdings, which was sold at a 3.6% discount, and a $165 million Merrill Lynch-led placement for casino operator Galaxy Entertainment, which was priced at a 4.7% discount. Earlier this week Morgan Stanley also arranged a $236 million top-up placement for Hengan International Group, a Chinese manufacturer of tissues and other hygiene paper products, which was priced at a 4.8% discount to the latest close.
Demand for the HTIL deal was said to have been good with a book that was ôcomfortably subscribedö. About 80% of the interest came from Asia, which was quite natural given that the offer was only open between 6.30pm and 9pm Hong Kong time. US-based investors accounted for a bit more than half of the remainder. Long-only funds made up the majority of the orders and several existing shareholders also took the opportunity to top up their holdings, sources say.
The sale came after the HTIL stock had been on a rising trend for six days, adding a total of 6.8%, but market sources say Orascom has been looking to sell a portion of its holdings for some time and several banks had looked at the transaction. It didnÆt provide any reason for the sale last night, but it may have something to do with HTILÆs decision to divest its Indian operations earlier this year.
When the company first invested in HTIL, OrascomÆs chairman and CEO, Naguib Sawiris, noted that the company had for some time been keen to enter some of the largest and highest growth mobile markets in the world like India, Indonesia and Vietnam.
ôThe tie up with Hutchison Telecom presents Orascom Telecom with exposure to these markets,ö he said.
HTIL has set up operations in both Indonesia and Vietnam this year, but the sale of its 67% stake in the Hutchison Essar joint venture in India to Vodafone did arguably remove one of the fastest growing parts of its business. Hutch Essar was the fourth largest mobile phone operator in India.
Orascom is selling the 3% stake at a price that is slightly below the HK$11 per share that it paid back in December 2005, but the investment has nevertheless yielded a handsome return as HTIL paid a special dividend of HK$6.75 per share following the sale of the Indian business for $11.1 billion plus $2 billion of debt.
OrascomÆs portion of the dividend amounted to $793 million. And based on HTILÆs share price of HK$10.08 after the dividend distribution on June 29, Orascom said the net return on its original investments stood at 33.5% at that time. Since then, the share price has gained another 12%.
The sell-down needed the consent from HTILÆs majority shareholder Hutchison Whampoa which sold the shares to Orascom in the first place. The reason is that both companies had agreed not to sell any shares in HTIL for two years after that original transaction. The fact that the sale comes a couple of months ahead of that ôlockupö isnÆt likely to be too much of a concern for other investors since the stake is quite small in relation to the market cap.
US investors appeared relaxed about it in any case, as HTILÆs ADRs were trading 1.2% higher four hours into last nightÆs session. However, the sale may trigger speculation about what Orascom will do with the rest of its stake ones the agreement not to sell runs out in December.
HTIL has had a pretty strong year with all its different businesses reporting improved results in the first six months due to a 15% year-on-year increase in its global customer base to 6.8 million, higher usage and also higher revenues from the usage of mobile data services. Excluding the contribution from the India operation, turnover from continuing operations increased 12.3% to HK$9.6 billion during this period compared with a year earlier. The company also reported a profit before tax from continuing operations of HK$663 million, compared with a loss of HK$300 million in the first half of 2006.
ôThe first half of 2007 marks a transformation period for Hutchison Telecom. In less than three years we were able to return to shareholders a special dividend which was more than the initial price of the shares at our IPO (in October 2004),ö said HTIL CEO Dennis Lui in a written statement at the time of the first half earnings in August.
The share price has come off from a record high of HK$20.85 in January this year, although most of that is the result of an adjustment to reflect the sale of the Indian assets.
Aside from Hong Kong, HTIL currently has operations in Macau, Israel, Thailand, Sri Lanka, Ghana, Vietnam and Indonesia. Orascom operates GSM (global system for mobile communications) networks in Algeria, Pakistan, Egypt, Tunisia, Iraq, Bangladesh and Zimbabwe.
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