Shanda shareholder pockets $157 million from sell-down

Shanda's share price falls in the wake of the sale, despite a reasonable discount of 3.7%.

The majority shareholder of China-based online games operator, Shanda Interactive Entertainment, has raised $157.4 million from a placement of secondary shares in the company following a week-long rally in the stock price.

Skyline Media sold 4.57 million American depository shares in the US-listed company at a price of $34.44 after they were offered in a range between $34.35 to $35.40. The final price equalled a 3.7% discount to TuesdayÆs close of $35.76. The placement was offered to investors on Wednesday evening Hong Kong time but was completed before the opening of US trading. UBS was the sole arranger.

Observers say the discount was reasonable and helped attract some hedge funds and other arbitrage funds to the deal.

ôThe placement shares are all existing shares, so there wonÆt be any dilution. If you believe the company is worth $35 and you get a chance to buy it at a 4% discount, then why wouldnÆt you buy?ö asks one source.

The offering also provided a good opportunity for investors to take a meaningful position in the stock, which is not very liquid. The total deal size accounted for about 40 daysÆ worth of trading volume.

According to the same source, the deal was comfortably covered by about 40 investors. The demand mainly came from the US, with only about a quarter of the investors said to have been based in Asia. The offering accounted for 12.8% of the share capital, but Skyline will still hold more than 50% of the company after the sell-down.

ShandaÆs stock price has had good momentum after the operator reported its second quarter results on August 27, which showed that its net income had more than tripled from the same period a year earlier. As of TuesdayÆs close (September 18), the share price had risen 16.4% since the announcement.

The share price did however drop 6.8% to $33.33 on Wednesday following the placement. Given that most of the other Chinese online games operators and the Dow Jones Industrial Average were trading up, the decline may have reflected some concern among investors about the controlling shareholder pulling a considerable amount of investment out of the company.

However, one observer say this was unlikely to have been the case as investors typically donÆt mind as long as the sell-down is done openly and the seller maintains control of the company.

ôWhat they donÆt like is when they donÆt know who is selling,ö he says.

Shanda provides a diverse portfolio of online games and interactive entertainment, including massively multi-player online role playing games (MMORPGs), casual online games, network PC games, cartoon, literary and music content. According to its 2006 annual report, it has developed a platform with over 500 million registered user accounts.

It claims to be the most diversified online game operator in the industry with 14 online game titles and three game platforms in operation.

The Shanda offering was first among a new wave of placements by Chinese companies following a quiet period in the wake of the correction triggered by the US subprime lending crisis. The spurt of activity yesterday included follow-on offerings by Hong Kong-listed developer Kerry Properties and Beijing Enterprises, which raised $533 million and $476 million respectively. A shareholder of Gome Electrical Appliances was also in the market trying to raise about $300 million through a sell-down last night.

The recovery in equity markets gathered pace this week after the US Federal Reserve cut its benchmark lending rate. In the US, the Dow Jones Industrial Average traded back up to the 13,800 level, closing at 13,815 on September 19, and in Hong Kong the Hang Seng Index closed at a new historical high of 25,701 points yesterday after two days of strong gains.

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