Pre-IPO shareholders take profits in Intime and Yingde Gases

And automotive parts manufacturer Minth raises $153 million in fresh capital from a top-up placement, taking advantage of a pickup in investor interest in Asian stocks.

The Hong Kong market's more positive tone over the past couple of weeks is encouraging shareholders to realise some profits -- especially those investors who have held shares in a company since before its listing. Last night Warburg Pincus sold slightly less than one-third of its holding in Intime Department Store Group, raising HK$777 million ($100 million); and on Wednesday night, three pre-IPO investors sold HK$1.12 billion ($145 million) worth of stock in Yingde Gases, a producer of gases that are used for the production of steel and chemicals, that listed in Hong Kong last October.

The Yingde Gases deal was particularly interesting as it was initially only planned to be about $35 million, but ballooned in size after the order book was more than 10 times covered, at which point the company's largest investor -- Baring Private Equity -- decided to join the sale.

The strong coverage ratio for what was initially intended to be just a small block trade, is clear proof that investors are now actively trying to increase their exposure to Asia after being underweight the region for some time. And the best way for them to do so is to participate in capital markets transactions where they get to buy at a bit of a discount and also don't risk pushing up the share price in the process.

But existing shareholders aren't the only ones trying to take advantage of the pickup in investor interest. Also on Wednesday, Minth Group, an automotive parts manufacturer that supplies car makers operating in China, raised HK$1.19 billion ($153 million) in fresh capital from a top-up placement.

The deal was chunky at 10% of the existing share capital and representing about 57 days' worth of trading volume, but still managed to price above the bottom of the range at HK$12.25 per share. This represented a discount of 8% versus Wednesday's close of HK$13.32. The shares were offered at a discount between 4.1% and 9.9%.

J.P. Morgan was the bookrunner for the Minth transaction, which was conducted on a best-effort basis. Goldman Sachs arranged the sell-down in Yingde Gases and Morgan Stanley helped Warburg Pincus reduce its holding in Intime.

Intime

Last night's sale in Intime came after the company announced earnings for 2009 that were generally in line with expectations, but included some positive surprises. This sent the stock 3.2% higher amid a largely weaker market, pushing the share price above HK$8 for the first time since early 2008.

As such, this would have been a good level for Warburg Pincus to monetise part of its holdings. Before this transaction it owned close to 22% of the company. Its remaining 16% stake will be locked up for 90 days.

The private equity firm offered 105 million shares, or a 6% stake in the company, at a price between HK$7.33 and HK$7.66. That represented a discount of 6% to 10% versus yesterday's close of HK$8.15.

One source said that size discount was deemed necessary because the stock is not particularly liquid and also because the share price has gained 13.8% in the past two weeks.

However, the deal did price towards the low end of the discount range, at 9.2%, or at an absolute price of HK$7.40.

The deal was launched close to 6.30pm Hong Kong, which is quite late for a placement, but was covered within an hour. Most of the demand came for Asian investors or global accounts based in Asia, followed by the US and Europe in that order. Close to 50 accounts participated in the transaction, including both new and existing investors. 

Yingde Gases

Given the smaller size of the original block, Yingde Gases was offered at a much tighter discount, between 2.1% and 5.5%. This translated into an absolute share price of HK$8.20 to HK$8.50. At launch the block consisted of 32.247 million shares which represented the entire shareholding from two pre-IPO investors, or a modest 1.8% stake in the company.

But after the deal ended 10 times covered at the top end and it was clear the price would be fixed at HK$8.50 for a 2.1% discount, Baring Private Equity decided to throw 100 million additional shares into the mix, bringing the size of the total block to 7.3% of the company.

The action was welcome since there had been quite a lot of speculation what Barings may do with its stake when the six-month lockup on the pre-IPO investors was to expire yesterday. The fact that it chose to sell just over 40% of its holding straight away means there is unlikely to be a lasting overhang, even though Baring still owns 140 million shares.

At 24 days worth of trading volume, the transaction also offered a liquidity injection into the stock. The share price peaked at HK$9.30, or 33% above the IPO price at the end of October, but has spent most of the time since then range trading between HK$7.50 and HK$8.50 before returning above HK$9 towards the end of March. As of yesterday, the stock closed 24% above the HK$7 IPO price.

According to a source, the deal saw strong support from existing shareholders with demand coming both from Asia and Europe. 

Minth

Meanwhile, Minth attracted close to 60 investors to its follow-on, including existing shareholders who wished to top up their holdings, emerging markets funds, some China specialists and a number of hedge funds, sources said.

This deal too was said to have been covered in less than an hour (it launched just before 5.30pm Hong Kong time on Wednesday), but kept open until about 9pm to allow US investors a chance to participate.

Initially a small-cap, Minth hasn't been on everybody's radar screen, but having grown to a market capitalisation of about $1.5 billion, it is attracting more interest. Investors are also taking notice of the fact that the company is looking to expand its presence outside of China.

In an announcement, the company said it will use part of its net proceeds to improve its production networks globally. The intention, it said, is to consolidate the group's global market presence (through M&As or organically) in anticipation of further consolidation in the automobile parts industry. Some of the funds will also go towards an expansion of its production capacity in China, to launch new production lines, and to enhance its research and development facilities.

Minth was suspended through the morning session yesterday as the documentation for the placement was cleared with the stock exchange. When it resumed trading in the afternoon, the stock fell 8.4% to HK$12.20, five cents below the placement price. 

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