The chairman of Hong Kong-listed Digital China Holdings last night joined the stream of existing shareholders in various companies taking some money off the table with a block trade that raised HK$1.02 billion ($131 million).
The deal, which was initially intended to raise up to $98 million, attracted a lot of demand and was upsized by 33%. The price was also fixed at the top of the offering range.
Separately, Standard Chartered Bank sold approximately 142.1 million shares in property developer Shui On Land as part of the unwinding of an equity swap with Shui On Land’s chairman Vincent Lo. The deal raised HK$520 million ($67 million) after being priced at the mid-point of the range. All the proceeds will go to Lo.
The level of interest in both transactions offer further evidence that investors are keen to put money to work after stock markets have opened the year on a strong note. Existing shareholders are taking advantage of this to secure some profits ahead of the earnings-related blackouts that will start to kick in later this month. And some companies are also taking the opportunity to raise fresh capital through follow-ons.
Including yesterday’s deals, there have been at least eight such transactions this week, which have raised a combined $2.5 billion. And that’s not counting smaller deals below $50 million. The two largest ones are Carlyle’s $796 million exit from China Pacific Insurance (CPIC) and Temasek’s $685 million sell-down in Shin Corp.
Notably, most of the stocks that have been the subject of these deals have traded well in the aftermarket, which is likely to prompt more sellers and companies to follow suit. Indeed, bankers expect to remain busy on block trades and follow-ons in the next few weeks.
Thai telecom holding company Shin Corp fell 2.6% to Bt65.25 yesterday after Temasek Holdings sold $685 million worth of shares in the company on Wednesday evening at a 5.6% discount. In other words, it closed well above the placement price of Bt63.25 and never fell below Bt64.50.
And in the Philippines, conglomerate GT Capital closed just 0.8% lower at Ps666 after the company and its controlling shareholder raised $350 million from a combined sale of new and existing shares, also on Wednesday night. The deal was upsized by 13% and priced at Ps620 — a 7.7% discount to the latest close.
Chairman Guo Wei initially offered 60 million shares in Digital China, an integrated IT services provider that was spun off from computer manufacturer Lenovo (or Legend Holdings as it was known back then) in 2001. But as noted, the deal was upsized to 80 million shares, or 7.3% of the company.
The price was fixed at HK$12.70 for an 8.1% discount versus yesterday’s close of HK$13.82. The shares were initially offered in a range between HK$12.50 and HK$12.70, which translated into a discount of 8.1% to 9.6%.
According to a source, the deal attracted about 90 investors and was more than 10 times covered when the order books closed after just two hours. The buyers included sovereign wealth funds and other top quality long-only funds. Since the deal closed at 6.30pm Hong Kong time, the demand was mostly Asia-based with some participation out of Europe.
Like many of the other deals this week, the transaction was well anchored at launch, but once it hit the market lots of other investors also emerged and wanted in — hence the decision to upsize. However, even at the larger size, most investors would have ended up with small allocations, particularly since 70% of the deal went to the top four accounts.
The interest may be partly explained by the fact that it can be quite difficult to get hold of this stock in the market — the deal accounted for 33 days of trading — and indeed sources said that one of the reasons why the chairman was selling was to improve the liquidity in the stock.
Guo was selling shares through a company called Kosalaki Investments, whose stake in Digital China will fall to 6.4% from 13.7% as a result of this transaction. Guo also holds some additional shares through another entity, according to the Hong Kong stock exchange website. The rest of Kosalaki’s shares will be subject to a six-month lockup.
Digital China’s share price has risen about 13% in the past 12 months, but is down about 16% from its 2012 high of HK$16.44 that it hit in April.
Shui On Land
The Shui On Land transaction also attracted good demand and according to a source it was fully covered in just 45 minutes. It too was open for just two hours and when the order books closed, the deal was about two times subscribed across the price range.
However, Standard Chartered chose to fix the price at the mid-point of the range at HK$3.66 for a 5.2% discount to yesterday’s close of HK$3.86. The shares were offered at HK$3.62 to HK$3.70, which translated into a discount of 4.15% to 6.2%.
The trading volume in Hong Kong-listed Shui On Land has been picking up in the past month alongside an increase in the share price and the deal accounted for about six days of trading based on this recent activity. This may have contributed to the fact that the final 5.2% discount was significantly narrower than when Socam, a Hong Kong-listed company also controlled by Vincent Lo, sold $58 million worth of shares in Shui On Land through a block trade in mid-December. That deal was priced at a 7.7% discount.
The 142.1 million shares sold by Standard Chartered yesterday accounted for about 2.4% of the company. The deal attracted about 30 investors, including both long-only accounts and hedge funds.
Perhaps a bit surprising, the sale came after Shui On Land said on Monday that its 2012 net profit will be “significantly” lower than in 2011 as a result of having completed fewer properties in the past year. The share price fell 3.6% on Tuesday in response to the news, but recovered almost all of that in the past two sessions. The share price has risen about 38% since it started pushing higher in early September.
After the market closed on Wednesday, Shui On Land also announced that it will go ahead and spin off the subsidiary that developed and runs its well-known Xintiandi restaurant and entertainment districts in Shanghai and other cities. The unit, which is named China Xintiandi, will focus on the management, design, leasing, and marketing of premium retail, office, entertainment and hotel properties in affluent urban areas in China, leaving Shui On Land free to focus on property development, the company said.
The announcement was quite sparse, but according to various media reports, company officials told a news conference in Shanghai that Shui On Land will still own 50% of China Xintiandi after it starts operating as a separate unit on March 1 and is looking for strategic investors for the remainder. China Xintiandi will be headed by Vincent Lo.
The company has earlier said that it is looking to list China Xintiandi through an initial public offering in Hong Kong, but Lo told the Shanghai media on Wednesday that in light of the volatile markets and the time it is taking to get the IPO underway, Shui On Land has decided to set up China Xintiandi as a separate company first. This should “let investors see its capability to make profits,” he was quoted as saying by Bloomberg.
Standard Chartered handled the sale of its Shui On Land shares itself.