Placements show investors still happy to put money to work

While we here at FinanceAsia have spent the past couple of weeks debating the merits of deals completed in the past 11 months to single out our awards winners for this year, the markets are seemingly not ready to sum up the year just yet.

While it is unlikely that any new IPOs will launch in the final two weeks of the year, overnight placements keep coming. As a number of recent deals show, investors have money left to invest and companies and existing shareholders are taking advantage by issuing new shares or selling down their stakes to secure a bit of profit.

Dutch financial services firm ING Groep led the way last Wednesday with the sale of its remaining 4.98% stake in Taiwan’s Fubon Financial Holding, raising NT$15.7 billion ($521 million). Then on Thursday, the controlling shareholders of Indonesia’s Profesional Telecomunikasi Indonesia, known as Protelindo, sold Rp4.76 trillion ($528 million) of secondary shares in the company to broaden the shareholder base and help improve liquidity in the stock. And after the market closed on Friday, the largest shareholder in Hong Kong-listed L’Occitane International offloaded a 3.4% stake to raise HK$1.06 billion ($136 million).

Fubon
ING received its stake in Fubon, which is one of the leading financial services companies in Taiwan and the operator of Fubon Bank, as part-payment when it sold its Taiwan life insurance business to Fubon early this year, and had indicated that it may sell it as part of an overall objective to divest non-core assets and reduce the complexity of its portfolio. Hence, there was a bit of an overhang on the stock, which had been underperforming both its Taiwan peers and the overall market.

ING offered all its 426.56 million shares at a price between NT$36.86 and NT$37.25, which represented a discount of 2.7% to 3.8% versus last Wednesday’s close of NT$38.30. The range seemed somewhat aggressive given that the size of the transaction accounted for about 23 to 25 days worth of trading and was also the largest straight equity trade in Taiwan year-to-date. Only the two convertible bonds for Hon Hai Precision ($1 billion) and AU Optronics ($800 million) were larger.

However, with one exception in late August, Fubon’s share price has not traded below NT$37 since early July and it had also been edging higher since the beginning of December. The latter made at least the banks bidding for the deal confident that there would be sufficient demand.

Still, it wasn’t a great surprise to see the price fixed at the bottom of the range for the maximum 3.8% discount. Investors may be willing to increase their exposure in certain stocks this late in the year, but they do also want to minimise the risk and bankers note that they are currently quite price sensitive.

A source said the majority of the demand came from international investors, as Taiwan funds are not that used to accelerated block trades. The final orderbook comprised about 50 accounts and a mix between hedge funds and long-only investors. There was also strong representation from the US.

Fubon’s share price dropped 1.7% the day after the deal and fell another 0.9% on Friday to NT$37.30.

ING said in a statement that it would realise a pretax profit of approximately €170 million ($225 million) from the sale, which it will book in the fourth quarter this year.

The deal was arranged on a sole basis by Morgan Stanley, after competitive bidding between several banks, and was the first block trade arranged by the US bank in a Taiwan-listed stock.

Protelindo
The sale of shares in Protelindo, or more specifically in its holding company Sarana Menara Nusantara, which owns virtually 100% of the operating unit, was totally different in that it was a transaction that joint bookrunners CLSA and Credit Suisse had been working on for months. They had even taken the management on a couple of global non-deal roadshows in June and October to prepare the ground for the sale.

And while it was technically carried out as an accelerated bookbuild, in practice, the deal was structured more as a re-IPO. The company, which is the largest independent owner and operator of telecom towers for wireless communication in Indonesia, had ended up a listed company with a minimal free-float following a rule change in Indonesia that prevents foreign investors from having a direct investment in domestic tower businesses. However, they can own them through the stock market and the intention of this sale was to get international institutions to take an interest in the stock.

The deal consisted of two parts: a pre-deal placement of approximately $160 million to financial investors and the management, and the placement through the capital markets on Thursday night, which amounted to about $368 million.

Excluding the pre-placed portion, the deal accounted for about 27% of the issued share capital, or 277.1 million secondary shares, which were sold by two entities owned by the family controlling Protelindo. The total deal accounted for about 38.9% and will have a significant impact on the free-float which was only 11% before the sale (in reality even less since that 11% includes management shareholders who do not trade the stock).

The placement was offered at a fixed price of Rp12,000 per share, which represented a discount of 11.1% versus Thursday’s close. However, with a trading volume of just $43,000 per day in the stock – meaning the transaction accounted for literally thousands of trading days – the deal wasn’t really marketed on a discount basis. Rather it was marketed at an absolute valuation – as would an IPO. The placement price translated into an enterprise value-to-Ebitda multiple of 12.5 times, which pitched the company at a slight premium to the IPO valuation of its smaller competitor Bersama Tower. The latter, which is majority-owned by Recapital Advisers, listed in Jakarta in October at an Ev/Ebitda multiple of 12.3 times.

And following the extensive marketing by the bookrunners, investors were receptive to the transaction. According to a source, the placement was a little over two times covered and attracted about 30 investors, primarily Asian and offshore US accounts. The demand was said to have been driven by high-quality long-only investors, but with decent interest from hedge funds as well. Prior to this deal, Protelindo’s shareholder base included no international institutions.

The deal was launched a couple of days after Protelindo announced that it had signed a letter of intent with PT Hutchison CP Telecommunications (HCPT) to buy 1,000 of HCPT's towers in Indonesia, which would have helped attract interest to the stock. The acquisition will increase Protelindo’s existing tower portfolio by about 20%.

L’Occitane
The block trade in French cosmetics and skincare company L’Occitane had a lot fewer issues to overcome, which was just as well since the deal was launched at about 6.30pm Hong Kong time on Friday. However, the stock has performed well since it listed in Hong Kong in May, triggering reverse inquiries from investors and making the bookrunners reasonably confident that the deal could get done. L’Occitane attracted a lot of headlines at the time of its IPO, being only the second non-Asian company to list in Hong Kong and the first from the highly popular consumer retail sector. Last week, its $787 million IPO was awarded by FinanceAsia as the Best Hong Kong Deal this year.

The seller, L'Occitane Groupe (LOG), owns shares on behalf of senior and middle-management of the company and it is likely that it wanted to give those guys a chance to monetise some of their holdings before the holiday season. LOG was prevented from selling any shares in the first six months after the Hong Kong listing and when the lockup expired on November 7, it ran into an earnings-related blackout.

Perhaps as an acknowledgement of the timing, the intended deal size of 50 million shares was split into a base size of 40 million shares plus an upsize option of 10 million. However, they were offered in an aggressive range between HK$21.14 and HK$21.96, which at the bottom end translated into a discount of 1.9% versus Friday’s close of HK$21.55 and at the top represented a premium of 1.9%.

The likelihood that it would price at a premium was always going to be quite slim, and the fact that the final price was fixed at the bottom for a 1.9% discount was no surprise. However, the company was able to exercise the upsize option in full, bringing the total deal size to 3.4% of the existing share capital, or about 17 days worth of trading.

As indicated by the reverse inquiries – and despite the thin discount – the deal was well covered. According to a source, most of the demand came from long-only accounts based in the US, who liked the company on a fundamental basis. About 30 investors, including existing shareholders, participated in the transaction.

At the time of the placement, L’Occitane was up 42.9% from its IPO price of HK$15.08. Like many other IPOs this year it has come off its peak, but not by much. As of last Friday, it was trading just 10.6% below its record high of HK$24.10, which it reached in late October.

The deal was arranged by CLSA, HSBC and UBS, which were also joint bookrunners for the IPO.