Road King raises cash from follow-on offering

The toll road operator sells $118 million worth of shares to help pay for its transition into a property developer.
Road King Infrastructure last night joined the multitude of Hong Kong-listed companies seeking fresh funds from the stock market as the benchmark index trades at record levels. The index penetrated 19,000 points for the first time earlier this week, but has since fallen back slightly. Yesterday it gained 0.8% to close at 18,952 points.

The Mainland toll road operator raised a total of $915.2 million ($118 million) from a placement of mainly new shares that came three days after it announced details of an earlier flagged acquisition of distressed property developer Suzhou Sunco Property.

The acquisition, which will cost the company Rmb370 million ($47 million) in cash and assumed debt, is part of a plan to transform Road King from a toll road operator into a more diversified player with a primary focus on property development. The idea is to retain the original business, which provides a steady cash flow, and also to continue acquiring about one new toll road per year, but this business will account for a shrinking portion of future revenues, people familiar with the company say.

The share price has had a strong run since the intention to buy Suzhou Sunco was first announced in early September, gaining about 26% to yesterdayÆs close of HK$11.54. Since mid-March it has almost doubled from HK$6, and deeming from the interest in the placement investors expect the gains to continue as the companyÆs new business takes off.

According to a source, the UBS-led deal was about 3.2 times covered even though the book was open for less than two hours after the Hong Kong market closed yesterday. The initial price sensitivity towards the low end of the indicative range was also all but erased as the momentum picked up and the price was eventually fixed in the upped half of the range at HK$10.96 for a 5% discount to the most recent close.

The shares were offered at a discount of 3% to 9%. The offer comprised 83.5 million shares of which 80 million where new and sold through a top-up placement. The remaining 3.5 million were secondary shares sold by the companyÆs CEO for personal reasons.

The companyÆs second largest shareholder, Shenzhen Investment, initially planned to buy 25 million of the new shares to prevent its 24% stake from getting diluted, but because there wasnÆt enough shares to go around, its final allocation was scaled back to 20 million shares, or 23.9% of the total deal size. This sale will need shareholders' approval which the company will seek at the same extraordinary general meeting that will vote on the Sunco acquisition.

The share sale accounted for 13.8% of the existing share capital and offered a good opportunity for international investors who want to participate in the transformation to buy into the still quite small company that has a market cap of only $900 million. The company also turns over well below 1 million shares per day, making it difficult to buy the stock in bulk in the market. By the same token though, it may be quite tough to exit should the investment fail to yield the desired returns.

Suzhou Sunco owns an undeveloped 672,000sqm site in the Suzhou Industrial Park as well as the Phoenix Land residential project in the same city, which has 197,179sqm of unsold space. Road King currently owns six other properties in Guangzhou and Changzhou and operates 21 toll roads in eight mainland provinces.
¬ Haymarket Media Limited. All rights reserved.
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