Placements pick up pace alongside busy IPO calendar

Xinyi Glass sells $158 million of mostly new shares and Indonesia's Lippo Karawaci raises $112 million to pay for a Reit acquisition. Meanwhile, Hopu trims its stake in Winsway Coking Coal through an $82 million block.

Alongside the launch of several Asian initial public offerings in quick succession this week — some of which are returning after failing to get enough interest earlier in the year — a number of block trades and top-up placements has also been keeping bankers busy. The pickup in activity suggests that market sentiment is improving somewhat, although it could also be a question of issuers and sellers trying to grab the window of opportunity while it is there, in case it doesn’t last.

Indeed, the fact that several IPOs that have come to market over the past couple of months are still trading below issue price, is making investors less eager to commit more money. Today’s trading debut by Shanghai Pharmaceutical, which at $2 billion is the largest Hong Kong IPO so far this year, is being anxiously watched for signs of a turnaround in this trend. By the lunchtime break, the drug manufacturer and distributor was marginally above its HK$23 issue price at HK$23.05.

Importantly though, it appears as if the placements over the past week has been priced at a level where there is real investor demand and consequently the deals have held up in the aftermarket. This is key for convincing other issuers and sellers to follow suit, and to get investors to participate.

Setting off the positive trend was a $124 million sell-down in Intime Department Store by Warburg Pincus last Friday. The deal, which was arranged by Morgan Stanley, was upsized by 33% and completed at a tight 4.6% discount thanks to support from existing shareholders, as well as high-quality asset managers and hedge funds. Intime finished the first day 2 Hong Kong cents below the placement price, but has recovered strongly since then and yesterday finished 4.3% above last Friday’s close. However, the momentum has had some help from the fact that MSCI announced earlier this week that the department store operator will be included into its MSCI China index as of June 1.

On Wednesday night this week, Indonesian property company Lippo Karawaci raised Rp957 billion ($112 million) from a top-up placement that was priced towards the low end of the Rp650 to Rp710 range at Rp660, resulting in a 12% discount to the latest close. The deal, which was arranged by CLSA was said to have been well supported by existing shareholders and the fact that the share price stayed above the placement price all day yesterday and finished the session just 9.3% down at Rp680, backs up those reports.

And last night there were two deals done in Hong Kong — a top-up placement in Xinyi Glass that was upsized to $158 million and a sell-down in Winsway Coking Coal by China-focused private equity fund Hopu that was also upsized, although only to $82 million. Again, both deals saw existing shareholders come in and top up their holdings and as of the lunch-time break today (Friday) both stocks were trading slightly above their respective placement price.

Xinyi Glass
Initially, Xinyi Glass offered 100 million shares at a price between HK$8.35 and HK$8.60, which represented a discount between 4.4% and 7.2% versus yesterday’s close of HK$9.00. There was also an upsize option of 50 million secondary shares that were provided by a group of management shareholders.

After a few hours of bookbuilding, the base deal was said to be between two and three times covered, but joint bookrunners Citi and J.P. Morgan were believed to have decided not to exercise the upsize option to make sure the stock traded well in the aftermarket. However, just after the books closed, a long-only investor who was already a shareholder in Xinyi Glass threw in an order for about one-third of the deal, which prompted the banks to review the situation. In the end they chose to exercise the upsize option almost in full and sell an additional 47.268 million secondary shares, while keeping the price at the bottom of the range for the maximum 7.2% discount.

Xinyi Glass’s share price has tripled in the past 12 months, and as of yesterday’s close it was only 7.5% below its all-time high of HK$9.73 that it hit in early May.

Investors clearly do like the company, which makes high quality float glass and glass products for the construction and automobile sectors. A couple of years ago it also began production of thin-film photovoltaic glass, which is used in the manufacturing of solar cells. According to a source, the deal was covered in just 30 minutes and some 60% to 65% of the final demand came from long-only investors.

Xinyi Glass said it will use the money for factory expansion.

In the morning session Friday, the share price fell 6.5% to HK$8.41, leaving the stock 0.7% above the placement price.

Winsway
Hopu, which invested in Winsway before its IPO in September last year, offered 125 million shares at a fixed price of HK$3.92, which represented a 5.1% discount to yesterday’s close of HK$4.13. The term sheet noted that the deal may be upsized but didn’t specify by how much.

According to a source, Hopu was aiming to reduce its existing 9.6% stake below 5%, which is a key level since it would mean the fund would no longer have to disclose its sales in the stock. In fact, part of the reason why the deal was launched at a fixed price was to enable the bookrunners to focus on increasing the size.

So, when the demand proved strong enough, the number of share on offer was increased by 30% to 163 million, which resulted in a total deal size of HK$639 million ($82 million). However, based on Hong Kong stock exchange disclosure data 163 million shares account for just 4.3% of the outstanding share capital, which means Hopu will still own 5.3% of the company after this transaction.

The deal was said to have been well covered even after it was upsized. Some existing investors participated in large sizes, but there were also some that were new to the company. Winsway has done quite a bit of investor relations work following its latest results and that appears to have paid off. Overall, more than 40 investors came into the deal.

Winsway is a logistics provider focusing on the coking coal industry in Mongolia. Among other things it transports the coal by rail and truck to the end-users in China, helps facilitate the border crossing and provides washing and blending services — a business that has wider operating margins than the production of the coal itself.

The share price hit a high of HK$4.81 in January this year, but has been on a mostly declining trend since then. As of last night, it was down 14% from its highs, but 11.6% above the IPO price of HK$3.70. By lunchtime today, the price had slipped 4.8% to HK$3.93, which put it 1 HK cent above the placement price.

The block was arranged by Bank of America and Goldman Sachs, which were joint bookrunners for the IPO together with Deutsche Bank. Goldman Sachs also has ties to Hopu since the fund was set up by former Goldman Sachs investment bankers Fang Fenglei and Richard Ong.

Lippo Karawaci
Lippo was raising money to fund the bulk of its acquisition of a 27.24% controlling stake in Singapore-listed Lippo-Mapleetree Indonesia Retail Trust and a 40% stake in the asset manager of that trust. According to a company announcement, the acquisition will “position Lippo Karawaci as the largest mall owner/manager in Indonesia and among the largest in Southeast Asia.”

The top-up placement consisted of 1.45 billion shares, or about 6.7% of the existing share capital. According to a source, the offering was anchored by existing shareholders and about 75% of the demand came from long-only funds, with hedge funds accounting for the rest.

 

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