Cedar Holdings, which is 63%-owned by Temasek Holdings, has reduced its stake in Thailand’s Shin Corp through a Bt9.12 billion ($305 million) block trade. The deal was the second sell-down in a Bangkok-listed company this week. It was upsized by 50% and priced above the bottom of the indicated range.
The discount versus the latest close worked out at 10%, which reflected the fact that the stock is very illiquid. The free-float before this deal was just 4% and the offering accounted for about 150 days of trading volume.
While such parameters suggest a potentially risky trade, there were two key issues that attracted investors to the deal. One was the fact that Shin Corp, which is essentially a holding company, trades at a discount to the value of its parts, and the other was the high dividend yield offered by its largest listed asset — mobile phone operator Advanced Info Service. Shin Corp typically passes almost all of this dividend on to its shareholders.
In addition to that, the free-float will almost triple as a result of this transaction, to about 11.9% which will be positive for all shareholders.
Meanwhile, Central Pattana, which was the subject of a $120 million sell-down by the Thailand Equity Fund earlier in the week, held up extremely well in the wake of the transaction, confirming that there is strong demand for Thai stocks at the moment, both from domestic and international investors. That would have made the seller confident that a deal could get done despite a lingering scepticism towards equities globally.
“There is a market window in Thailand [for deals] right now,” noted one banker. “Unfortunately [for banks and investors] there aren’t that many opportunities, but we could see a few more sell-down situations in the near term.”
Central Pattana closed just 0.7% lower on Wednesday even though the block trade was priced at a 5.6% discount. It fell another 2.1% yesterday.
About 35 investors participated in the Shin Corp transaction, including long-only accounts, hedge-funds and a larger than normal portion of high-net worth individuals who were supposedly drawn in by the promise of high dividends. According to a statement issued by Shin Corp yesterday, approximately 60% of the shares were sold to domestic investors while the rest was allocated to international accounts through non-voting depositary receipts.
Prior to this transaction, Shin Corp was 54.4% owned by Cedar Holdings, which in turn is 62.5%-owned by Temasek. The rest of Cedar is owned by Siam Commercial Bank and a group of domestic investors. Temasek also owns another 41.7% in Shin Corp through a wholly owned entity named Aspen Holdings.
The deal accounted for 7.9% of Shin Corp’s existing share capital and will reduce Cedar’s stake to about 46.4%. The seller has committed not to sell any more shares for 90 days. According to the Shin Corp statement, Aspen also said yesterday that it has “no immediate plan to sell its shares in the company and remains confident in the business and the management”.
Temasek, Siam Commercial Bank and the domestic partners 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, which was prompted at least in part by wide-spread criticism of the conflict of interest between Thaksin’s role as prime minister and his family’s business interests, 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 military coup in September 2006.
This week’s deal, which was launched after the close of Bangkok trading on Wednesday and completed within two hours, comprised 169 million shares and an option to sell a further 84.5 million shares in case of demand. The option was exercised in full, resulting in a final deal size of 253.5 million shares.
The shares were offered in a range between Bt35.50 and Bt37.25, which equalled a discount of 6.9% to 11.3% versus Wednesday’s closing price of Bt40. The price was fixed at Bt36, resulting in a 10% discount.
Before the deal, Shin Corp’s share price had gained about 38% this year and it has held up well during the turmoil in global equity markets in the past couple of weeks. Temasek sold the shares at a discount to the Bt49.25 price that it paid in 2006, but this doesn’t necessarily mean that the Singapore investment company didn’t make money on the investment since the dividends would have contributed to its return as well.
Based on Wednesday’s closing price, Shin Corp traded at an indicated dividend yield of 8.4%, while the discounted placement price resulted in a an even more enticing yield of 9.4%. The stock will go ex-dividend on Monday and investors who bought into the placement will be eligible to receive the interim payout of Bt1.63 per share in full. Investors can of course buy Advanced Info Service (AIS) directly in the market, but it seems the discounted price offered through Shin Corp was a tempting proposition at least to some investors.
A source noted that Shin Corp’s 42.5% stake in AIS was valued at about Bt45.50 per Shin Corp share based on that company’s closing price on Wednesday. On top of that, its 41.1% stake in satellite company Thaicom is valued at about Bt1.50 per share and its cash holdings at another Bt1 per share. In all, that means Shin Corp was trading at a 16.5% discount to its sum-of-parts valuation as of Wednesday and that the block trade gave investors a chance to buy it at a close to 25% discount.
Shin Corp’s share price fell just 5.6% to Bt37.75 yesterday, which left it 4.9% above the placement price. While the strong showing fits the positive view that bankers and analysts have on Thailand at the moment, it was likely also due to an unwillingness to sell Shin Corp just a few days ahead of the dividend payout date.
The deal was arranged on a sole basis by Morgan Stanley and was the fourth transaction done for Temasek by the bank in the equity capital markets this year. In July it helped the Singapore firm to sell part of its holdings in Bank of China and China Construction Bank through two concurrent deals that totalled $3.6 billion, and in January, it arranged the sale of its entire $879 million stake in Australian iron ore miner Fortescue Metals Group.