Placements in Hong Kong-listed companies raise a combined $485 million

Textile manufacturer Shenzhou International raises $198 million of fresh capital, while CIC trims its stake in polysilicon supplier GCL-Poly by $287 million.
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Hong Kong's benchmark index gained 1.2% yesterday
<div style="text-align: left;"> Hong Kong's benchmark index gained 1.2% yesterday </div>

A second straight session of gains was all it took for the Hong Kong placement market to stir back to life with not just one, but two deals of size last night.

Textile manufacturer Shenzhou International Group raised HK$1.54 billion ($198 million) from a top-up placement and China Investment Corp (CIC) reduced its stake in GCL-Poly Energy Holdings, a supplier of polysilicon and wafers for solar cells, through a HK$2.23 billion ($287 million) block trade.

Both deals were well received and Shenzhou International was upsized by 25% to accommodate long-only investors who wanted bigger allocations than what was possible under the base deal, but even so, the priced was fixed slightly above the bottom of the range.

The GCL-Poly block was priced at the bottom for an 11.4% discount although that was probably needed after the share price jumped 7.1% yesterday. The stock gained after the Chinese government said in a statement that it intends to boost domestic demand for solar power and make it easier for manufacturers in the supply chain to obtain financing.

Yesterday’s 1.2% gain in the Hang Seng Index pushed the index 1.6% above its low-point of 20,887 points last Thursday and marked the first time since May 27 and 28 that it has been up two sessions in a row. The advance seems to have had an immediate positive impact on sentiment and investors were quite keen to put some more money to work after the market closed. According to sources, both deals attracted just over 50 investors.

Positive trading in Europe added further support during the bookbuilding. However, US markets did retract some of their early gains as investors started to look ahead to Wednesday’s Federal Open Market Committee meeting, which will be followed by a press conference by Fed chairman Ben Bernanke. The hope is that the two events will provide some clarity on a possible winding down of the Fed’s stimulus programme.

The Dow Jones Index finished 0.7% higher after being up as much as 1.3% earlier in the session.

Shenzhou International Group
The company, which manufactures fabric and knitwear for brands like Uniqlo, Adidas and Nike, hit the market first, at about 5.30pm Hong Kong time. The stock is up 40% so far this year and has held up well amid that last couple of weeks of market volatility. Hence this was a good time for it to raise new capital.

The company said it will use $100 million of the money raised to finance the first phase of its new manufacturing plant in Vietnam. The rest will be used for phase two of the same project and for general working capital. This is the company’s first move into Vietnam, but in mid-April last year it did a similar placement to raise capital for a plant in Cambodia and the execution of that project has gone entirely according to plan.

The share price has also risen 62% since then, giving investors the confidence to support another expansion project.

The company offered 55 million shares at a price between HK$22.30 and HK$23.20, which translated into a discount of 5.9% to 9.1% versus yesterday’s close of HK$24.65.

The deal came with an upsize option of 20 million shares, which was partially exercised to increase the total deal size to 69 million shares. The price was fixed at HK$22.40 for a 9.1% discount.

At the enlarged size, the deal accounted for 5% of the existing share capital and about 22 days of trading volume.

According to a source, about 70% of the demand came from long-only investors, while the rest was made up by hedge funds. Some of the buyers were existing shareholders that took the opportunity to top-up their holdings but the deal also introduced quite a few new investors to the stock.

The allocation was pretty tight, with about 55% of the deal going to the top-five accounts. This may have been partly to reward the anchor investors. The source said there was enough indicated demand to cover almost all of the base deal before launch.

This was the third placement in Shenzhou International in just over a year. Aside from the deal last April, which raised $151 million of fresh capital for the company, the chairman and senior management sold down their combined stake through a $102 million block trade in January this year. These two deals were priced at discounts of 9.1% and 7% respectively.

Since the latest deal in January, the liquidity in the stock has improved significantly and it now trades about $9 million per day on average, compared to just over $1 million previously. And since the share price has continued to trend higher, investors didn’t seem concerned about the fact that there had been three deals fairly close together.

Of course, it also helped that they liked the fact that the money will be going towards capacity expansion, and hence future growth.

However, the company was clearly keen to demonstrate that it has no intention of returning to the capital markets any time soon, as it has agreed to a 12-month lock-up after this deal.

The placement was arranged by Credit Suisse, which was also the sole bookrunner for the earlier two deals.

GCL-Poly Energy
CIC, China’s sovereign wealth fund, paid about $710 million for a 20% stake In GCL-Poly in November 2009. The first six months after its investment the share price was drifting lower, but then it took off and in April 2011, it hit a record high of HK$5.55 — more than three times the HK$1.79 per share that CIC had paid.

Since then, however, the solar power industry has been plagued by over-supply, while governments around the world have also been reducing subsidies for solar power. And like most other companies in the sector, GCL-Poly’s share price has lost a lot of ground.

It hit a low of HK$1.13 in September last year and has remained pretty volatile since then. Yesterday’s 7.1% gain saw it close at HK$2.10, which puts its year-to-date gains at 34%, although it has had a few ups and downs in between. The gains this year are a reflection of the fact that some analysts have started to suggest that the worst is now behind the solar power industry.

CIC offered to sell 1.2 billion shares, which account for 7.8% of the company and close to 40% of its holdings. It has sold no shares since its initial investment and this transaction will reduce its stake to 12.35% from 20%. Its remaining 1.9 billion shares will be subject to a 60-day lock-up.

The shares were marketed at a price between HK$1.86 and HK$1.96, which translated into a discount of 6.7% to 11.4% versus yesterday’s close. As mentioned, the price was fixed at the bottom of the range for the maximum 11.4% discount.

According to a source, this is quite a popular stock with hedge funds since it is pretty liquid –the average daily turnover is about $40 million, which means the block trade accounted for no more than seven days of trading.

This was reflected in the type of buyers, although the source said there was okay demand from long-only investors as well. Apparently, the bookrunner had time to cross a few accounts in the market after the mandate was bid out at the Hong Kong market close and when the deal launched at about 6:30pm, it had visibility on a decent amount of demand already.

When the bookbuilding closed after a couple of hours, the deal as almost two times covered, the source said.

In addition to its polysilicon and wafer business, GCL-Poly also owns or has invested in 18 cogeneration power plants, two incineration power plants, one wind power plant, one rooftop solar project and two solar farms in Jiangsu province and in Tibet.

The company posted a HK$3.5 billion loss in 2012 as the market prices for wafers and polysilicon continued to decline. In its annual report, which was published in mid-March, the company blamed a combination of factors, including a cyclical oversupply in the industry, the European debt crisis, changes in the European subsidy policy and the dumping of imported polysilicon into China

However, it also noted positive signs such as the rapid increase of the use of solar power energy in emerging markets, including Southeast Asia, as well as in Japan. There have also been further indications that the Chinese government is determined to expand the application of solar power and to increase the domestic demand, chairman Zhu Gongshan said in his statement to investors.

Goldman Sachs was the sole bookrunner for the transaction.

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