China's Kingboard Chemical sold HK$1.2 billion ($152 million) of shares in its Hong Kong-listed subsidiary Kingboard Laminates on Tuesday, taking advantage of massive investor interest on the back of its strong earnings report for the previous financial year.
One source familiar with the situation said the block sale was supported by existing shareholders as well as sovereign wealth funds, long-only investors, and hedge funds. The order book was well-subscribed with over 30 accounts.
Sole bookrunner Citic CLSA had full visibility of the trade because it was borne out of reverse enquiries from existing and new investors, who believe the stock has further upside after the Chinese laminates manufacturer on March 24 reported a 243% jump in its adjusted 2016 post-tax profit.
Shares in Kingboard Laminates, China’s largest producer of copper clad laminates, have been on a sizzling and sustained run as demand has soared for its products, which are used in the production of printed circuit boards. The company's share price is up 166% compared with April last year, having added 15.3% in the 12 trading days since it reported earnings.
Demand for laminates has been intense since the beginning of the year amid shortages in glass yarns, one of the raw materials for laminates production. Industry analysts expect the shortage to persist till the end of the year and are factoring in higher prices and margins for laminates.
Suspension
Instead of executing the block trade during non-trading hours, as is normal practice, the seller suspended trading in Kingboard Laminates shares to better manage the risks, according to the source.
With full visibility on demand, Kingboard Chemical launched the stock sale at a fixed discount of 7.1% to Kingboard Laminates’ HK$10.20 Monday close. The company sold 125 million shares, equivalent to 4.1% of the subsidiary’s existing share capital.
Kingboard Chemical said the share sale – which effectively reduces its stake in its Hong Kong subsidiary to 68.5% – will help to enhance market liquidity. Before the transaction Kingboard Chemical had a 27.4% free float, which was slightly above the minimum threshold of 25% under Hong Kong listing rules.
Shares in Kingboard Laminates subsequently closed well above the offer price at HK$9.57 on Wednesday, in contrast to a recent run of weaker block trades, including Anta Sports and IMAX China, in which prices fell.
