The deal, which marked the first time Sino Land has raised new capital through the equity markets since January 2001, was offered in a range between HK$19.57 and HK$20.21, which represented a 4% to 7% discount to MondayÆs close of HK$21.05. It was priced at the very bottom for the maximum discount, which suggests that the two Hong Kong placements that were priced above the low end of their respective ranges last week, may merely have been exceptions to the current trend.
The fully underwritten placement comprised 220 million shares, or 4.8% of the existing share capital. The shares were sold by Sino LandÆs controlling shareholder, who will now subscribe to the same number of new shares at the same price. The company said the money will be used to pay for land acquisitions in Hong Kong and China, but didnÆt specify whether this referred to future acquisitions or to the ones it has recently announced.
Market watchers started speculating that the deal may be struggling when it hadnÆt been completed by midnight Monday after six hours of bookbuilding, but in fact the delay turned out to be due to the management holding one-on-one meetings with prospective investors during the US morning. This ômini-roadshowö was possible because Sino Land is participating in an Asia-focused investment conference in New York this week which is hosted by JPMorgan û the same bank that arranged the placement.
The book formally closed at 2am Tuesday morning Hong Kong time, but with a promise that investors who had scheduled meetings with the company after that time would still be able to submit orders. The longer-than-usual bookbuild meant the stock exchange wasnÆt able to clear the disclosure documents before the start of Hong Kong trading and as a result Sino Land had to be suspended for the morning session. It resumed trading after lunch, and immediately fell through the placement price.
According to sources, the personal touch from the management resulted in a greater-than-usual portion of the deal ending up with US investors although no definitive breakdown was available. The 50 or so investors who were said to have submitted orders included some big US funds as well as a wide mix of hedge funds and long-only funds out of Asia, Europe and the US.
However, while the management may have been able to drum up some additional interest for the deal, they couldnÆt do much about the price sensitivity, which would have been at least partially linked to the fact that Sino LandÆs share price has rallied 39.4% from a low on August 17.
The total order amount wasnÆt overwhelming either with investors saying they were allocated about 80%-90% of what they put in for. However, the deal did provide further proof that the average order sizes are creeping higher after falling to as little as $3 million to $4 million in the wake of the August correction. Even at a 90% allocation ratio û suggesting a subscription rate of only 1.1 times û the average order size would have been just over $12 million. At an 80% allocation rate, it increases to about $13.8 million.
This was in line with last ThursdayÆs successful placements for Kerry Properties and Beijing Enterprises Holding, which mustered average order sizes of approximately $11 million and $15 million respectively, based on the subscription ratios and investor numbers provided by sources at the time.
Hong Kong-based Kerry Properties raised $533 million from an upsized offering at a 5% discount to its latest close after offering the shares at a 4% to 6.9% discount. Citi was the sole bookrunner. Mainland conglomerate Beijing Enterprises enlisted the help of Goldman Sachs, Lehman Brothers and Macquarie Securities to sell $476 million worth of shares at a 5.6% discount compared with an offered discount range of 3%-7%.
One observer notes that the timing of these two deals was excellent, coming only one trading day after the Federal Reserve cut its key interest rate by a larger-than-expected 50 basis points in the early hours of Tuesday morning Hong Kong time. That meant they were able to ride on the stock market euphoria that followed the very next day and included a 4% gain in the Hang Seng Index.
While the Hong Kong market has continued to head higher, closing at a new record of 26,551 points on Monday, investors appear to once again have taken a step back and decided to submit orders for placements only at a the widest possible discount û a common approach at times of high market volatility.
On Friday, the chairman of consumer electronics retailer Gome Electrical Appliances raised $300 million through a placement that was priced at the wide end of the 6% to 8% discount that was on offer through China International Capital Corp.
The Sino Land stock clearly fits in with the high volatility theme. In the 11 days leading up to the placement, its share price was up more than 3% four times, including a 7.9% gain on September 19, and down between 2.4% and 4.6% on three occasions. It recorded six days of gains and five days of losses.
The stock fell 8.4% on Tuesday in wake of the placement, ending at HK$19.28 or 1.5% below the placement price. It did drop as low as HK$19.02 at one point and clearly underperformed both the wider market and the Hang Seng property index (of which Sino Land is a part) which were down 0.5% and 0.6% respectively. The Hong Kong market was closed for a holiday yesterday.
Sino Land grabbed the headlines just over a week ago as the leader (together with Nan Fung Development) of the consortium that won the land auction bidding for a residential site in the Tai Po district of Hong KongÆs New Territories. The consortium, which also includes two other developers, paid HK$4.55 billion ($584 million) for the land and a Nan Fung spokesman told local reporters it will invest between HK$5 billion and HK$6 billion to develop it together with two adjacent sites into a single project with 1,000 residential units.
Sino Land and Nan Fung will each own 35% of the property.
In the wake of this acquisition, Deutsche Bank raised its price target for the Sino Land stock to HK$23.40 and UBS lifted its target to HK$24.
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