Cosco International Holdings, a Chinese provider of shipping services, yesterday sold its entire stake in property developer Sino-Ocean Land Holding through a placement, raising HK$5.32 billion ($684 million). The placement was sizeable for this time of year, but it also stood out as it was completed at a premium of more than 10% versus yesterday’s close – a notable achievement at a time when investors have become increasingly price sensitive and reluctant to add more risk than necessary.
However, sources confirmed that a large chunk of the deal was sold to a couple of investors who were referred to as being “strategic in nature” and, by the time the deal was launched to the broader market after the close of Hong Kong trading, there weren’t too many shares left to place. But other investors did come into the deal, perhaps amid expectation that the introduction of new strategics could have a positive impact on the share price. It is also possible that some investors were short of the stock and needed to cover their positions in case the share price was to pop.
The deal served as a significant liquidity event for Hong Kong-listed Sino-Ocean as it accounted for more than 60 days worth of trading.
One source said the non-strategic buyers included institutional investors, as well as a few hedge funds. But the number of investors interested in the stock at this level was, not surprisingly, quite small. Most of the investors were Asia-based.
The strategic investors were not disclosed and nor was the portion of the deal that they acquired, but with the total placement accounting for 16.85% of the outstanding share capital, it seems likely that they will have to make a public disclosure in the next few days. Investors are required to disclose their investments in a particular stock, once their holdings exceed 5%.
The placement, including the strategic portion, comprised approximately 949.9 million shares that were offered at a fixed price of HK$5.60. This represented a 10.24% premium versus yesterday’s close of HK$5.08. Placements are typically done at a discount to the market price, as it makes little sense for investors to pay more than they would have to in the open market. However, if it is difficult to come by the stock in a meaningful size in the open market for whatever reason, that dynamic changes. This year, at least three Korean sell-downs have been completed at a zero discount, or at a price that was flat versus the latest close. That said, a premium of this size is definitely unusual.
Sino-Ocean’s share price also hasn’t performed particularly well this year as investors continue to worry both about a property bubble on the mainland and about the impact on the property sector as China continues to curb bank lending. The People’s Bank of China has also started to raise interest rates in an attempt to keep inflation at manageable levels.
The transaction was arranged by BOC International and UBS.