Renhe placement raises $720 million

Renhe Commercial Holdings and its controlling shareholder were in the market yesterday, selling a combined HK$5.58 billion ($720 million) worth of shares. Two-thirds of the placement was comprised of new shares, which means the company raised about $480 million, which it will use towards the acquisition of operating rights for six underground shopping centres that was also announced yesterday.

The new share portion was by itself larger than Renhe's $435 million initial public offering in October last year, and when you add in the existing shares sold by the controlling shareholder, executive director Xiu Li Hawken, yesterday's deal was more than 1.5 times the money raised in connection with the listing. And because most international investors shunned the IPO, which launched just two weeks after the collapse of Lehman Brothers, leaving Renhe to rely primarily on mainland-China based corporate and individual investors to ensure the listing went ahead, this was in effect a re-IPO of the company in the international market.  

The interest in the company, which is a private-sector developer and operator of underground shopping centres, has been picking up on the back of a strong financial performance and a surge in the share price after listing -- in the first two months this year, the stock more than doubled -- but the limited number of available shares has made it difficult for investors to buy in. The first chance to buy shares in bulk (since the IPO) came in late March when a group of five existing shareholders teamed up to sell $97 million worth of shares through a placement. But with more than 50 accounts participating in the well-received deal, the average allocations were still quite small. A second placement by three separate shareholders a week later provided the opportunity for international investors to buy another $87 million worth of shares.

However, the combined size of those two transactions was dwarfed by yesterday's sale, which was viewed as a real liquidity event. Investors also welcomed the addition of new shopping malls, which some analysts estimate will be immediately earnings accretive. Yesterday's announcement that Renhe has agreed to acquire the operating rights for six new malls -- two of which are already up and running -- also came just a week after the company said that it had received government approval for two greenfield shopping mall developments in Wuhu, Anhui Province, and Qingdao, Shandong Province. That news sent the share price sharply higher. Between the announcement late on July 9 and the close of trading on Wednesday, it was up 18%.

Yesterday's placement, which was led by UBS, was launched at around 8am Hong Kong time and was covered within an hour. The books were kept open until 11am, however, to give more investors a chance to take part, but the deal was still wrapped up in time for the stock to resume trading in the afternoon after being suspended throughout the morning session. The bookrunner was able to get it done this quickly since it had pre-sounded a number of investors before launch, and in fact, people close to the deal say they had order indications for more than half the deal even before the term sheet went out.

The deal comprised 3 billion shares which were offered at a price between HK$1.80 and HK$1.88. The price translated into a discount of 7.8% to 11.8% versus Wednesday's closing price of HK$2.04, which seemed reasonable given the rally over the past few days and the fact that the deal accounted for about 29 days' worth of trading, based on the average daily volume over the past three months. It also translated into 15% of the existing issued share capital, or 10% if counting only the new shares.

The final price was fixed two cents off the top at HK$1.86 for an 8.8% discount.

According to a source, about 65 investors participated, including a number of accounts that bought into the first sell-down in March, which was also arranged by UBS, that time together with BOC International. There was one very large order from a long-only fund in the US and because of the link to the six new malls, the deal also generated a lot of interest from hedge funds focusing on event-driven strategies.

Renhe's share price fell when it resumed trading yesterday afternoon and at one point was down as much as 3.8% versus the placement price at HK$1.79. However, it recovered to finish two cents above the said price at HK$1.88 -- a 7.8% decline on the day.

As a result of the transaction, Hawken's stake in the company will fall to 56.5% from 67.2%. She divested a net 1 billion shares by first selling 3 billion existing shares and then subscribing to 2 billion new shares at the same price. The money raised, approximately $240 million, will reportedly be used to fund pre-IPO restructuring of other companies owned by Hawken. Hawken is the sister of Renhe's chairman Dai Yongge.

Bankers are divided on the merits of doing placements during trading hours while the stock is suspended, versus the more common practice in Asia of launching a deal after the market is closed. However, the former is definitely becoming more common for Hong Kong-listed companies, and yesterday there was in fact a second deal in the market during trading hours as China Windpower too suspended trading to raise new capital for its ongoing expansion.

The Chinese wind farm operator sold 700 million new shares that were priced at the bottom of an indicated range of HK$0.85 to HK$0.89 for a total deal size of HK$595 million ($77 million). The discount was pretty wide at 12.2%, but given that this is an unknown name, it didn't seem excessive. China Windpower's share price has also had a strong run on the back of China's support for renewable energy.

One source noted that several of the company's projects are still at the developing stage and don't yet generate any revenues. It is therefore still very much a concept stock, but for those who believe in renewable energy and in Beijing's continued backing of it, the company offers an alternative to the multitude of solar power stocks out there.

"It is a bit of a gamble, but one that could pay off handsomely," the source said.

The deal, which remained open until about 4pm Hong Kong time, was said to have been about two times covered. It attracted about 25 accounts, primarily from Asia and Europe, and sported a good mix of long-only investors and hedge funds. Royal Bank of Scotland was the sole bookrunner.