Shareholder exits Cheung Kong via placement

The $600 million pre-trading sale is completed in 30 minutes despite the tightest discount for a placement so far this year.
An existing shareholder has sold its remaining stake in property conglomerate Cheung Kong at a 3.8% discount to the market price, raising HK$4.67 billion ($600 million) in the process.

Unusually for Hong Kong, the placement was launched and completed before the opening of Hong Kong trading yesterday and to accomplish that sole bookrunner UBS offered the shares to the market at a fixed price and on a ôfirst come, first serveö basis. This seems to have done the trick as the shares were snapped up in just under 30 minutes after the 9am launch, which was just in time to have the deal wrapped up before the market opened.

ôYou need to create some urgency around itö to sell the shares in this short time, says one source of the unusual sales method.

That said, in comparison with the other three placements done in Asia so far this year, the price wasnÆt a giveaway as the discount on the other three û which have all been sold this week û has ranged from 5% to 7%. At $600 million, the deal is also three times the size of the China High Speed Transmission block, which was priced at the bottom of the range for a 7% discount after the market closed on Tuesday. The other two deals were both below $100 million.

One source says the discount is reasonable in the context of Cheung Kong because it is a very liquid stock and the deal accounted for no more than four dayÆs trading volume. The outlook for the company is also positive. According to Bloomberg Data, 15 of the 18 analysts who follow the stock have a ôbuyö recommendation on it. The other three advise their clients to ôholdö. Their average target price is HK$168.40, which suggests a further 19% upside from current levels.

However, the stock has had a good run already, rising 53% in 2007, compared with a 39% gain in the Hang Seng Index. Before the placement, it was up another 1.2% this year and was trading quite close it the record closing high of HK$158.50, which it reached in late October.

The block comprised 33.53 million shares, or a 1.4% stake in the company. The price was set at HK$140.50 per share, which compared with WednesdayÆs closing price of HK$146. The seller wasnÆt disclosed. About 40 investors participated in the deal, which was closed as soon as the book was filled in keeping with the ôfirst come, first serveö strategy. The buyers were Asia-based, but included a mix of long-only investors and hedge funds, the source says.

The share price held above the placement price for most of the morning trading after the sale yesterday, and following a drop to $140 in the afternoon it recovered to close at HK$141 û 3.4% below WednesdayÆs close.

So far, all the placements done this year have been secondary share sell-downs and bankers expect this is a trend that will continue in the coming weeks. Many investors are sitting on quite a bit of cash that they need to put to work in the equity market and existing shareholders are taking advantage of this to secure some profits.

ôItÆs an efficient way to tap liquidity,ö notes one observer. The fact that they are choosing to sell through the capital markets also shows that they are aware of the increased volatility which could make it difficult to sell the same amount of shares in the market in a short space of time, he adds.

Earlier this week, the controlling shareholder of Chinese department store operator Parkson Retail Group sold $80.1 million worth of shares in the company at a fixed price that represented a 5% discount to the previous price. A day later, an undisclosed seller raised $40 million by offloading shares in AirAsia, the Malaysian budget airline. That deal was priced at the bottom of the offered range, which also translated into a 5% discount.

So far, the block trades have been dominated by UBS, which aside from yesterdayÆs sale of Cheung Kong shares also acted as the sole bookrunner for the China High Speed and AirAsia trades. The Parkson deal was jointly arranged by BNP Paribas and JPMorgan.
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