The multiple fund raisings, which has been particularly numerous within the property sector, have sparked some concern among market watchers that companies are sensing that the top of the market is drawing nearer. However, bankers involved in some of this weekÆs placements say there is still a lot of liquidity out there and so far there has been no indications that investor demand is waning.
ôThere was about $400 million to $500 million (worth of capital) flowing into Asia again last week which marks the 10th week of steady inflows,ö one banker says.
Friday saw Agile Property Holdings and its chairman sell a combined HK$3.12 billion ($408 million) worth of shares in a deal launched in the Hong Kong afternoon when the stock was suspended from trading. This was followed by Henderson Land Development, which completed a HK$5.5 billion ($708 million) top-up placement after the local market closed.
Both deals were arranged on a sole basis by Morgan Stanley and followed placements in Hang Lung Properties, Hopson Development, China Power International Development and Wumart earlier in the week. Yesterday, PCCW also sold its entire 8% stake in Tradelink Electronic Commerce through a small $12 million fixed-price deal arranged by DBS Asia Capital, bringing the aggregate amount of cash raised by Hong Kong-listed companies last week to $2.58 billion.
Henderson LandÆs $708 million placement was the second largest of the week after Hang Lung PropertiesÆ $860 million deal on Monday, which was arranged by Credit Suisse and also comprised all new shares.
A company controlled by Henderson Land Chairman Lee Shau Kee sold 128 million existing shares at the bottom of the HK$43.05 to HK$43.75 offered range and will subscribe to the same amount of new shares at the same price. All the fresh capital goes to the company, which will use it for land acquisitions and property developments in China.
After acquiring land for two housing and commercial projects in Changsha and Xuzhou New Town during the financial year ending June 2006, Henderson owns 14.5 million sqf of attributable land in China in addition to 2.64 million sqf of completed investment projects. In total the Hong Kong-based developer has now invested HK$13.9 billion ($1.8 billion) in China, which represents 11% of its total assets.
The bottom-end pricing, which represented a discount of 6.5% to FridayÆs close of HK$46.05, potentially indicated some emerging fatigue towards the placement activity, but could also simply have been a reaction to it being the second deal to be launched on a Friday.
According to a source, the order book was closed once the deal was covered, and the option to increase the deal by 13% to 145 million shares wasnÆt exercised. The sale was a bit slow to get going, but in the end attracted 40-50 investors. About 30%-40% of the demand came from the US, where the company has quite a broad shareholder base already.
Both Henderson Land and Agile saw existing shareholders participate in their respective deals. There was also said to have been an overlap of real estate funds buying into both offers, which was obviously made easier by the fact that both trades were arranged by the same bank.
AgileÆs smaller offer was over three times covered with about 75 participating investors. One source said the book was covered within the first hour but was kept open with the aim of attracting a bit more demand from Europe. The bulk of the interest still came from Asia while US investors didnÆt really get a chance to look at the deal before the order book closed.
The 466.9 million shares, or 12.5% of the enlarged share capital, were offered at a 5% to 7.5% discount to the HK$7.21 close at the end of morning trading Friday. The price was fixed towards the top of the HK$6.67 to HK$6.85 price range at HK$6.80 for a discount of 5.7%. The stock closed at a record high of HK$7.23 on Thursday last week and reached a new intraday high of HK$7.29 on Friday before ending the morning session slightly lower.
Sixty percent of the deal was new shares and according to the term sheet those proceeds will be used for future land acquisitions. Agile also raised another $400 million from the sale of high-yield bonds for the same purpose only eight weeks ago, but investors donÆt seem to mind as long as it is doing something constructive with the money. Indeed, the company has been accumulating quite a bit of land recently.
Since it listed on December 15 last year, AgileÆs has expanded its land bank to 8.3 million square metres plus another 6.4 million sqm for which land use right certificates are still pending, from 8.1 million sqm plus 1.5 million sqm. In the same period, its share price has risen 118%, making it a good time for the management to raise new equity.
In a research note published the day before the placement, Morgan Stanley analysts Kenny Tse said Agile is one of the bankÆs preferred picks in the China property sector with ôgenuine upside risk to its end-07 NAV and estimated 2008 EPS numbers following aggressive land bank expansion year to date.ö
Tse has an overweight rating on the stock and a price target of HK$8.10 and notes that the bankÆs 34% three-year earnings CAGR ôcould prove conservative.ö
Investors also seemed willing to overlook the fact that the remaining 40% of the deal was made up of shares sold by Top Coast Investment Management, a company controlled by Chairman Chen Zhou Lin.
ôThe chairman has never monetised any of his holdings in the company and he will still own about 58%,ö says one observer, who notes that the sale doesnÆt mean he or the company feels there isnÆt more upside to be had in the share price.
However, brokers say there is some nervousness among investors that the increased frequency of placements could be a signal that company managements and existing shareholders are starting to feel they need to act now if they are to make the most of the high share prices.
The Hang Seng Index fell 0.3% Friday to a close of 18,891 points but has gained 9.9%, or just over 1,700 points, since mid-September. It is also only 270 points below the record intraday high of 19,161 reached on November 7. However, plenty of analysts still see room for further gains in the coming 12 months, driven primarily by the Mainland stocks that are included in the index. Those will soon be increased by two after HSI Services said on Friday that H shares Bank of China and Sinopec will both become part of the bluechip index from December 4.
JPMorganÆs head of Asia Pacific Equity Research Adrian Mowat said Friday he expects the HSI to reach 21,000 points by the end of 2007. He is also very keen on Mainland real estate counters, which he sees as key beneficiaries of some of the big structural themes in that market like urbanisation and the increase of domestic wealth and consumption.