Shin Corp's free-float is increased and Luk Fook raises $175 million

A Temasek entity reduces its stake in Thailand's Shin Corp for the second time in five months through a $254 million sale, while Luk Fook issues new shares to fund its expansion.
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Cedar is majority-owned by Singapore's Temasek
<div style="text-align: left;"> Cedar is majority-owned by Singapore's Temasek </div>

Grabbing what was widely regarded as the last market window before the Lunar New Year holidays next week, Cedar Holdings on Wednesday evening raised Bt8.08 billion ($254 million) from the sale of a 6.2% stake in Thai telecom holding company Shin Corp.

However, Luk Fook Holdings quickly proved that it was still possible to do deals yesterday evening when it became the first Asian company of size to sell new shares this year. The Hong Kong-listed jewellery retailer raised $175 million from an upsized offering that attracted strong interest.

Wednesday’s trade was the second divestment in five months by Cedar, which is majority-owned by Temasek Holdings, following a $305 million block trade in August. The seller fetched a higher price and tighter discount this time around, partly because it didn’t go overboard on size. However, the transaction was structured to push the free-float above 20%, which makes the stock eligible to be included in the local SET50 and SET100 indices — a smart move by the company and its bookrunners since it should help boost interest in the stock.

In a research note issued yesterday, Bualuang Securities analyst Prasit Sujiravorakul noted that many fund managers have internal compliance rules that restrict, or even prohibit, investments in shares that are not part of these two indices.

“The stock’s entry into the SET50 (at the next review in June) should make it more attractive to investors of all types,” he said.

Investors clearly got the significance and, according to a source, the offering was fully covered an hour after the 6pm launch (Hong Kong time). The books were kept open until 8.30pm and by then the coverage ratio had increased to approximately three times. More than 50 investors were said to have participated in the deal.

And after dipping below the placement price in early trading yesterday, Shin Corp’s share price rebounded to finish the session 1.15% higher than the previous day — a strong showing as it left the stock 8.9% above the placement price.

The deal comprised 200 million shares that were offered at a price between Bt40.10 and Bt41.60, which translated into a discount of 4.4% to 7.8% versus Wednesday’s close of Bt43.50. The price was fixed towards the low end at Bt40.40 for a 7% discount.

Like the August sale, the deal was targeted primarily towards domestic investors, which is no doubt done to balance the fact that the major shareholder is a foreign company. In a statement issued yesterday, Shin Corp said that approximately 75% of the shares were allocated to Thai investors, which the rest was bought by international accounts through non-voting depositary receipts. In August, the split between domestic and international investors was 60-40.

According to a source, the international buyers included high-quality long-only investors, as well as hedge funds and some private banking investors, who like Shin Corp’s high dividend yield.

The deal, which accounted for about 25 to 30 days worth of trading volume, will reduce Cedar’s stake in Shin Corp to 38% from 44.2% and will boost the free-float to 20.3% from 14.1%. Aside from making the stock eligible for the key Thai indices, the sale also raised the free-float above the 15% that is the minimum requirement on the Thai exchange. However, sources note that the regulators are not particularly strict in enforcing that.

Temasek also owns another 41.7% in Shin Corp through a wholly owned entity named Aspen Holdings. In the announcement, Shin Corp said Aspen has confirmed that it “has no immediate plan to sell its shares in the company and remains confident in the business and management.”

Temasek, together with Siam Commercial Bank and a number of domestic partners that are co-owners in Cedar, bought a controlling 49.6% stake in Shin Corp from the family of then prime minister Thaksin Shinawatra in 2006, paying a total of $1.85 billion or Bt49.25 per share, and later added to their interests through a tender offer. The initial deal turned out to be highly controversial, both because the assets were sold to a foreign buyer and because the Thaksin family claimed (at the time successfully) that the profitable transaction should be exempt from capital gains tax. The deal triggered widespread protests that eventually led to Thaksin being ousted as prime minister through a coup in September 2006.

In August, Cedar sold 253.5 million shares, or a 7.9% stake in the company, at a price of Bt36 per share. At the time, this translated into a 10% discount versus the latest close.

The share price came under some pressure when global markets fell in August and September, but overall held up well and since the beginning of November it has resumed its strong upward trend. In the past 12 months the stock has gained about 47% and at the time of Wednesday’s deal it was trading near the 52-week high of Bt44.25 that it reached on December 19, and which also marks its highest trading level since 2005.

The block trade was arranged by Credit Suisse as the sole bookrunner, while Siam Commercial Bank acted as a co-manager.

Luk Fook Holdings
Meanwhile, Luk Fook surprised the market by launching a top-up placement after the market closed yesterday. And while people had previously argued that Thursday would be too late to do a deal since trading volumes are bound to be thin today ahead of the holidays, they proved to be quite keen to buy when an offering materialised.

According to a source, about 80 investors came into the deal and the order book was covered within 30 minutes.

The jewellery sector in Hong Kong and China has attracted quite a lot of attention lately, partly because of the listing of Chow Tai Fook Jewellery in Hong Kong in December, and partly because it is viewed to be somewhat defensive in nature — people will buy gold for weddings, birthdays and other personal matters even in a downturn. And underlying that is the fact that it is a domestic consumption play that is expected to yield a lot of growth long-term.

Luk Fook’s share price has risen 19.3% since the beginning of the year, but is still 28% below its 2011 high of HK$44.75 that it reached in mid-August. Hence, some investors may have viewed this a good entry point.

Luk Fook didn’t offer to sell a specific number of shares, but said it was aiming to raise about $125 million. However, in light of the strong interest the size was increased to $175 million. The deal was still several times covered after being upsized.

The shares were offered at a price between HK$29.15 and HK$30.40, which translated into a discount of 6% to 9.9% versus yesterday’s close of HK$32.35. The price was fixed just above the bottom of the range at HK$29.25, resulting in a 9.6% discount.

Based on the final price, the company sold 46.6 million new shares, which accounted for 8.6% of the existing share capital and about 11 days worth of trading.

Up to two thirds of the buyers were estimated to be based in Asia, but a couple of European and US funds also participated in the transaction, according to a source. The deal was anchored on long-only investors.

Luk Fook said it will use the proceeds to buy inventory and to fund its future expansion in China.

Goldman Sachs was the sole bookrunner.

¬ Haymarket Media Limited. All rights reserved.
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