Zhongsheng block trade

PE fund sells $129 million of shares in Zhongsheng

General Atlantic reduces its stake in Chinese auto retailer Zhongsheng for the third time since its IPO, while an existing shareholder sells $66 million of shares in Indonesian property developer Summarecon.
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Mercedes-Benz is one of the brands sold by Zhongsheng in China (AFP) </div>
<div style="text-align: left;"> Mercedes-Benz is one of the brands sold by Zhongsheng in China (AFP) </div>

General Atlantic last night sold a 3.5% stake in Chinese retailer Zhongsheng Group Holdings, raising HK$999.7 million ($129 million). This was the third sale by the private equity fund since Zhongsheng listed in Hong Kong two years ago, but its first since January last year.

The company’s share price had gained 23% since March 21 on the back of strong 2011 earnings and was well on its way towards the previous peak of HK$17.14 that it hit in early February. During the past week, however, the stock had seemed to be struggling to move much above the HK$16 level and General Atlantic chose to sell even though the share price dropped 2.3% yesterday to HK$16.02.

The deal launched at 6pm Hong Kong time and remained open for about three hours. After a bit of a slow start, the offering ended up being well-received, particularly by US-based investors who came into the deal in the final 30 minutes. In the end, the order book was about two times covered, which allowed sole bookrunner Goldman Sachs to fix the price above the bottom of the range for a 4% discount.

The shares were tightly allocated, however. According to a source, more than three-quarters of the deal went to the top five accounts and about two-thirds were taken up by long-only investors. In all, about 40 investors came into the book, led by Asian and global long-only names. There was also a strong showing by existing shareholders.

The deal comprised 65 million shares, which accounted for about 43% of the General Atlantic’s remaining stake and about 10 days of trading volume. They were offered at a price between HK$15.33 and HK$15.53, which translated into a discount between 3% and 4.3%. The final price was fixed 4% below yesterday’s close at HK$15.38.

The sale will reduce General Atlantic’s stake in the company to about 5% from around 8.5%, the source said. Its remaining shares will be locked up for 90 days. The private equity firm first bought shares in Zhongsheng in 2008 and at the time of the IPO in March 2010 it invested a further $25 million to prevent its 15% stake from being diluted.

However, in October of that same year, General Atlantic teamed up with Zhongsheng’s controlling shareholder for a joint placement after their IPO lockups expired. At that time, General Atlantic sold some 24.4 million shares at HK$16.42 apiece. Morgan Stanley and UBS were joint bookrunners.

It then returned to the market just three months later, in January 2011, when it sold a further 80 million shares through a $170 million trade that was arranged by Morgan Stanley. That deal was upsized by 33% and priced at a 5% discount, resulting in an absolute price of HK$16.45.

After hitting a high just above HK$18 in July 2011, Zhongsheng’s share price fell sharply last autumn and at the low point in October last year it was trading below HK$10. Since then, it has been on a recovering trend, but with the interruption of sizeable corrections from time to time.

An observer noted that China’s auto dealership sector is becoming more mature, but Zhongsheng itself said at the time of its earnings in late February that it still sees huge growth potential as the penetration of automobiles in China is still years behind other more mature and developed countries. In particular, it sees increasing demand for mid- to high-end and luxury cars as well as sustainable rapid growth of after-sales services. The company is an authorised dealer for luxury brands Mercedes-Benz, Lexus and Audi, and for the mid-to-high end brands of Toyota, Nissan and Honda.

Zhongsheng posted a 74.3% gain in revenues last year to Rmb41.9 billion ($6.6 billion), while its net profit improved by 51.8% to Rmb1.6 billion.

Separately, Credit Suisse did a small block in Indonesian property developer Summarecon Agung last night, which saw an undisclosed shareholder sell $66 million worth of shares. The deal was said to have been well over two times covered and was upsized from a base deal of $50 million.

The shares were offered at a price between Rp1,575 and Rp1,625, which translated into a discount of 3.2% to 6.2% versus yesterday’s volume-weighted average price (VWAP). The final price was fixed at Rp1,600 for a 4.7% discount to VWAP and an 8% discount to yesterday’s close after the share price spiked up in the final few minutes.

A source said the order book was of “extremely high quality”, but was unable to provide further details.

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