The Hong Kong stock market had another positive day yesterday with the benchmark index adding 0.6% to finish at a new 18-month high. Despite that, only one small block trade launched after the market closed last night ― a clean-up trade in Chaowei Power Holdings by Chinese private equity firm Hony Capital Management that raised $75 million.
CVC Capital Partners and RBS also reduced their combined stake in suitcase manufacturer Samsonite through a $289 million sell-down (see separate story on our website), but that deal was actually completed over the weekend.
However, sources say there are a lot of on-going discussions between vendors and bankers at the moment and several potential deals are also being sounded out with investors. Hence, more transactions are likely to follow later this week.
Hony Capital, which invested in Chaowei Power before its Hong Kong IPO in July 2010, sold all its 150 million shares in the company after the market closed yesterday. The UBS-led transaction accounted for close to 14% of the share capital and came after a recovery in the share price since early December.
Including a 3.2% gain to HK$4.24 yesterday, Chaowei Power is currently trading 94% above its IPO price. However, it is down from a 2012 high of HK$4.70 that it reached in August.
A small-cap Chinese company with a market capitalisation of about $550 million, Chaowei Power makes batteries for electric bicycles and is therefore one of many stocks that are benefitting from the recent signs of a pickup in China’s domestic consumption and overall economy.
The 150 million shares were offered at a price between HK$3.85 and HK$4.00, which translated into a discount of 5.7% to 9.2% versus yesterday’s close of HK$4.24.
The deal was “comfortably” priced just below the mid-point at HK$3.90 for an 8% discount, a source said.
Like on several other block trades this year, the bookrunners had a lot of demand visibility before launch ― in this case it was enough to cover about three-quarters of the deal. But the trade also attracted a good number of additional investors and when the order books closed after two hours, it was said to be multiple times covered at the final price.
About 45 investors submitted orders, with the buyers described as a good mix of long-only international accounts, Chinese investors, sovereign wealth funds and hedge funds. Chaowei Power’s top shareholders supported the deal, but according to the source the largest orders came from new investors.
Aside from the improving business environment, the stock should also benefit from the increase in the free-float on the back of Hony Capital’s exit and that likely helped boost the attraction of the deal. At present, the stock has an average turnover of just $1.5 million per day.
The fact that the private equity firm sold all its shares in the company in one go was is also a positive since it means that there will be no overhang on the share price. Hony Capital invested in Chaowei Power through a combination of a loan and a share subscription in early 2010. Its holdings were converted into 150 million shares at a price of HK$2.10 each before the IPO.
With a placement price of HK$4.24, that means Hony Capital has just about doubled its original investment in the stock.
In the first six months of 2012, Chaowei Power grew its sales volume, revenue and net profit by more than 100% year-on-year.
The company was aiming to increase its production capacity to about 90 million to 100 million units by the end of last year, from 75 million units at the end of June 2012, with additional capacity to follow this year. To help pay for the expansion, Chaowei Power raised Rmb663 million ($100 million) from a renminbi-denominated, but US dollar-settled, convertible bond in September last year.
In 2011, China had about 130 million electric bikes, and, according to Chaowei, the number is expected to grow to 200 million by 2015. This will not only lead to greater sales to bike manufacturers, but should also result in a significant boost to the company’s sale of replacement batteries for existing bikes.
One reason why yesterday was a bit quiet in terms of equity deals, some say, could be the fact that many investors and companies were busy with two separate China investor conferences that are arranged by Deutsche Bank and UBS early this week.
There is no question that investor sentiment and appetite for Asian stocks has picked up significantly since December though, and companies and existing shareholders are keen to take advantage while it lasts. Another sign of that (in addition to the overnight block trades and follow-ons) is that bankers will start investor education for another Hong Kong initial public offering today.
According to a source, Pan Asia is aiming to raise about $200 million from the IPO, which is scheduled to be completed before the Chinese New Year holidays in the second week of February. The deal will have no cornerstones, but a number of investors have shown interest in the company and will help anchor the deal, the source said. Pan Asia is based in Shenzhen and is one of the biggest suppliers of aluminium casings for Apple’s iPads. It is being brought to market by HSBC and J.P. Morgan, but a number of other banks are also said to be circling the deal.
Last week, Golden Wheel Tiandi Holdings became the first Asian company to price an IPO of size this year. The Chinese property developer raised $98 million with the help of BNP Paribas and BOCI and is set to start trading tomorrow.
Bankers also started pre-marketing for Chinalco Mining last Thursday with the aim of launching the institutional bookbuilding at the middle of this week. The company, which owns a copper deposit in Peru, is seeking to raise about $400 million to $500 million. BNP Paribas, CCB International, CICC, HSBC, Morgan Stanley and Standard Chartered are working on the deal.
China-related stocks were particularly strong yesterday on the back of a rally in domestic Chinese markets. The latter came after the chairman of the mainland securities regulator said foreign investors may be given increased access to China-listed shares. The Shanghai composite index added 3.1%, while in Hong Kong the H-share index gained 1.4% and the red-chip index finished 1.1% higher.