This is the second largest block trade by a Hong Kong-listed company this year after AlcoaÆs $1.97 billion exit from Aluminum Corp of China (Chalco) in September and the largest non-marketed Asian follow-on for a real estate company ever. The deal also came on a busy night in AsiaÆs equity capital market with at least three equity offerings and one convertible bond fighting for investorsÆ attention, including one other property-sector deal.
ôThe regional equity markets are very strong at the moment, there is a huge amount of liquidity available and investors are looking at property stocks in particular ahead of the expected (US) rate cut on Wednesday,ö one observer says with regard to the spike in deal activity.
Against that backdrop and taking into account that Sun Hung Kai's stock is at a record high, it seems likely that the deal is to some extent opportunistic in nature. Indeed one source notes that the developer doesnÆt really need this much cash. While it is easy to understand why a company wants to take advantage of a favourable market environment to boost its coffers, such a strategy could have proved a bit of a gamble for Sun Hung Kai given that its previous placement in May 2006 came at the peak of the market and is widely believed to have left Citi (as the sold bookrunner) holding part of the stock on offer. That deal too was launched as the stock was trading at record highs.
Rumours that Sun Hung Kai was about to do a placement last month resulted in the market becoming more jittery and, with the Hang Seng Index up 11.6% in the past five days alone and having surged through both the 30,000- and the 31,000-point mark in the past two days, you donÆt have to be a sceptic to ponder the likelihood of at least a small correction.
However, demand for the Sun Hung Kai placement turned out to be very strong and, according to sources, the deal was fully covered within one hour. When the books closed it was almost three times subscribed and had attracted over 100 accounts.
However, the orders werenÆt without price sensitivity and the price was fixed towards the bottom of the offering range at HK$150.75 for a discount of 5.7% versus yesterdayÆs record close of HK$159.90. The shares were offered in a range of HK$150.20 to HK$153.50, which represented a discount of 4% to 6.1%.
The 72.5 million shares on offer were sold by the Kwok Family Trust which is the controlling shareholder of the Hong Kong property developer. The trust will later subscribe for the same amount of shares at the same price to ensure that all the proceeds from the placement will end up with the company. The Kwok family will be prevented from selling any further stock in the company for 90 days after this deal.
The demand was said to have come from a global spread of accounts. According to a source, Asia accounted for about 60%, and there were good orders from Europe, the US and the Middle East.
The rare placement û this is only the second equity fund raising by the company in 11 years - was arranged by Goldman Sachs on a fully underwritten basis. Goldman was believed to have beaten at least three other investment banks to the punch, although some observers argued that the 4% to 6.1% discount range didnÆt really seem that competitive. Rather it was in line with where most of the recent Hong Kong placements have priced, suggesting that the US investment bank didnÆt win the mandate on the basis of price alone. The companyÆs previous placement last year, which totalled $1.01 billion, was completed at a 4.95% discount after being priced at the bottom of the indicated range.
True, the most recent Sun Hung Kai placement is larger than all the other recent deals aside from AlcoaÆs sell-down in Chalco, which was completed at a very generous 15% discount to ensure it would overcome a tricky market environment at the time. But in relation to the size of the company the deal isnÆt that grand. In fact, it accounts for only 2.9% of Sun Hung KaiÆs share capital and no more than seven days trading.
However, the 5.7% discount also needs to be looked at in the context of the recent sharp gains in Sun Hung KaiÆs share price. Yesterday alone it was up 4.1% and over the past five days it has gained 25.5%.
Analysts remain positive on the company in the wake of its aggressive investments into China, which has resulted in a re-rating of the stock over the past few months. Since the previous placement in May 2006, the share price has gained 81%.
Sun Hung Kai will be suspended from trading this morning to complete the necessary placement documentation that it has to file with the stock exchange.
Among the other deals in the market last night was a S$350 million new share offering by CapitaMall Trust, which is SingaporeÆs largest real estate investment trust backed by retail assets. CapitaMall is offering 97 million new shares at a price between S$3.63 and S$3.70, which equals a discount of 1.6% to 3.5% versus yesterdayÆs close of S$3.76. The deal is arranged by DBS and UBS and will remain open into the trading day today to ensure Asian investors are able to get a proper look at the offering, since it wasnÆt launched until about 7pm which is quite late in the day by Singapore standards. Consequently CapitaMall will be suspended from trading today.
Meanwhile, Joseph Lau, the chairman of Hong Kong-listed property firm Chinese Estates, was looking to sell 80.8 million shares in Singapore-listed Chinese shipbuilder Yangzijiang Shipbuilding. Lau, which was one of the cornerstone investors in YangzijiangÆs IPO in April this year, was offering the shares at a price between S$2.58 and S$2.63, which translates into a discount of 1.1% to 3% versus yesterdayÆs close of S$2.66.
According to a source, the Citi-led deal was priced at the bottom of the range for a 3% discount and a total deal size of S$208.5 million ($144 million). No further details were available as of early this morning. Given that Lau paid S$0.95 per Yangzijiang share during the IPO, he is likely to have made a profit of about S$131.7 million from last nightÆs trade. His investment during the IPO was subject to a three-month lockup.