Far EasTone block trade

Parent raises $170 million from sale of Far EasTone shares

The Far EasTone block trade comes a couple of months after SingTel sold its entire stake in the Taiwan mobile operator and is priced at a 3.3% discount.

For the second time in less than two months, a block of shares in Taiwan’s Far EasTone Telecommunications changed hands last night. This time it was two entities wholly owned by the controlling shareholder who took the opportunity to take some profit after the stock continued to gain last month in the wake of the earlier exit by Singapore Telecommunications (SingTel).

The sellers raised a total of NT$5.1 billion ($170 million) by offloading a combined 2.5% stake in the mobile operator. Sources said the company knew that there was quite a lot of excess demand for the SingTel placement at the end of April and given that its parent, Far Eastern New Century, owns just over 40% it had the ability to put some more shares in play without it having any impact on its overall control of Far EasTone.

Notably, the sellers called on Goldman Sachs, which was the sole bookrunner for the SingTel trade, to arrange this transaction as well, drawing on its knowledge of which accounts may be interested in buying this stock. They also appointed Bank of America Merrill Lynch as a joint bookrunner.

So, while the deal wasn’t the result of a formal reverse inquiry, it was strongly anchored and sources said it was covered quite quickly after the launch at around 5.45pm local time. The order books closed already at 8pm, which is earlier than usual for a deal that is available to onshore US investors. But the bookrunnners clearly felt that there was little point in keeping it open much longer.

The vendors, Kai Yuan International Investment and An Ho Garment, offered 80 million shares at a price between NT$63.50 and NT$64.50, which translated into a discount of 2.1% to 3.6% versus yesterday’s close of NT$65.90.

As an indication of the level of demand, the bookrunners were able to fix the price above the bottom of the range at NT$63.70 for a 3.3% discount. This was wider than the 2.5% discount that SingTel had to concede even though that block was significantly larger at $272 million, or 4% of the company. However, Far Eastern New Century did achieve a higher price per share than SingTel, which sold its shares at NT$62 apiece.

The share price dropped only slightly after the SingTel placement and just over two weeks later Far EasTone was again trading at record highs. It peaked on May 28 at NT$69.50 and then remained on a largely declining trend until the end of last week. On Monday it gained 4.1%, which may have prompted Far Eastern New Century to consider a sale.

The stock has risen 15.8% so far this year, outperforming the 2.8% gain in the benchmark Taiwan index. It is up about 45% since it started rallying in October last year.

Investors like Far EasTone because of its defensive nature and high dividends. In April, the company announced a 2012 cash dividend of NT$3 per share, including a special dividend of NT$0.53 per share, which together brought the payout ratio to 110% compared to just 92% in 2011. The dividend is expected to be distributed in the third quarter, which means investors who bought into last night’s deal are eligible to receive it.

According to a source, about 50 investors participated in the transaction, including a number of existing shareholders. About two-thirds of the demand came from long-only accounts and overall the quality of the participants was said to have been high.

Far Eastern New Century, which was previously known as Far Eastern Textile, is the original business of the Far Eastern Group. Aside from its holdings in various other group businesses, it also manufactures and processes a variety of textile products and is viewed as something of a soft commodity play. It will still own more than 38% of Far EasTone after this deal and has agreed to a 90-day lock-up.

Separately, market participants said yesterday that the block trade in Tsingtao Brewery that was in the market on Tuesday night, wasn’t fully distributed to external accounts at the time of pricing. The share price fell 7.8% to HK$46.60 yesterday, which left it below the placement price of HK$47. The deal was priced at a 7% discount and raised a total of $193 million. The seller was an individual investor and entrepreneur named Chen Fa Shu. J.P. Morgan was the sole bookrunner.

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