Temasek trims SingTel stake and GE Capital sells shares in Thai bank

Both trades are large for their respective markets with Temasek raising $1.04 billion and GE Capital pocketing $466 million from the sale of a portion of its holdings in Bank of Ayudhya.

Existing shareholders continue to monetise their holdings in Asian companies, with two more large trades raising a combined $1.5 billion last night: Temasek Holdings disposed of a 2.5% stake in Singapore Telecommunications (SingTel), raising S$1.28 billion ($1.04 billion); and GE Capital sold 7.6% of Thailand’s Bank of Ayudhya, pocketing Bt14.43 billion ($466 million) before expenses.

It is easy to draw negative conclusions when substantial shareholders are reducing, or even exiting, their holdings, and particularly in the financial sector some stakeholders are being forced to cut their positions in Asian peers due to stricter capital requirements and risk assessments. But some block trades are also opportunistic in the sense that the sellers are making use of high share prices in Asian stocks to make a bit of profit on investments they made before the latest financial crisis. Indeed, some of the recent deals have been triggered by reverse inquiries from investors, and some sellers, like Temasek, are bound to use the proceeds received from the sale of shares in one company to invest in another.

There is a lot of liquidity around at the moment, which is helping to drive these trades, bankers say. And investors are also increasingly keen to buy after making money on several other recent trades.

Whether this will be the case for these latest two deals as well remains to be seen, but the initial demand at least seemed pretty solid.

That said, the bookrunners did not exercise the 25% upsize option on the SingTel block and that deal was also priced at the bottom of the range for a discount of 3.9%. That looks pretty tight for a billion-dollar deal, but a source noted that the stock has underperformed both the Singapore benchmark index and its Asian telecom peers this year amid some speculation that Temasek may sell and with that overhang now out of the way, there is a room for further gains.

Temasek offered 400 million shares, which accounted for just a fraction of its 54.4% stake, so this was hardly a case of the seller giving up on the company. Indeed following this deal, it will still own 52% of Singapore’s leading telecom operator. This was also Temasek’s first sale of SingTel shares since 2006. The deal did include an option to increase the deal to 500 million shares in case of demand, although, as noted, this wasn’t exercised.

Even without the upsize option, the deal ranks as the second largest block trade ever in Singapore after Temasek’s sell-down in 2006, which raised $1.27 billion.

The shares represented 31 days of trading volume and were offered at a price between S$3.20 and S$3.25, which translated into a discount between 2.4% and 3.9% versus yesterday’s close of S$3.33. It was fixed at S$3.20 for the maximum 3.9% discount.

The deal attracted about 65 investors during some four-an-a-half hours of bookbuilding, including a few very large orders from the US. Indeed, the demand was skewed towards North America, which may have been partly due to the fact that the deal didn’t launch until 7:15pm Hong Kong time and hence did miss some Singapore investors — retail investors in particular — who may otherwise have come into the deal, one source noted. There was no further breakdown available of the buyers available last night.

That said, some investors out of Europe and the US have been buying SingTel in the market recently, taking advantage of its underperformance. The stock does trade at a dividend yield of about 5%, so is offering a decent return even if the capital gains are modest. Having fallen from a 2012 high of S$3.58 on the final day of July, SingTel is currently up only 7% this year, which compares with a 15.9% gain in the FTSE Straits Times index and a 40% gain by HKT Trust, which is the Hong Kong-listed owner of PCCW’s telecom assets.

Several banks have reportedly been trying to convince Temasek to sell part of its SingTel stake for some time, which is probably why the speculation of a transaction has arisen. But sources said Temasek approached less than a handful of banks when it decided to do the deal yesterday. Morgan Stanley, which has arranged several of Temasek’s equity capital markets trades in the past 18 months, was again given the mandate, this time together with Citi.

Temasek’s remaining shares in SingTel will be locked up for the somewhat unusual period of 120 days.

Bank of Ayudhya
Morgan Stanley was also the sole bookrunner for the block trade in Bank of Ayudhya, which comes after a media report a couple weeks ago said that the US investment bank had been hired as an adviser for a potential sale of GE Capital’s one-third stake. While not officially confirmed, that report supposedly triggered a few reverse inquiries from investors that, according to a source, became the base for last night’s trade.

The Bangkok-listed bank has had a strong run this year and is up 51% year-to-date. The share price reached a 52-week high of Bt36.50 on Wednesday last week, but fell 5% yesterday after a couple of banks were said to be sounding out investors for a possible deal, triggering a bit of selling as some market participants started to position themselves for a transaction.

The media report a couple of weeks ago raised some question marks about GE Capital’s strategy with regard to Bank of Ayudhya, in which it has been a shareholder since 2007. In addition to its capital investment, the US financial services firm has also been instrumental in putting an independent management team in place at the bank, which is Thailand’s fifth largest and a market leader in consumer finance, and if it were to decide to exit altogether, it could be seen as negative. So far, GE Capital hasn’t said anything publically about its intentions, but the firm has been selling other non-core businesses after suffering significant credit losses during the financial crisis.

However, yesterday it chose to sell only just over 20% of its stake, reducing its holdings from close to 33% to just over 25%. The deal comprised 461 million shares, which translated into 7.6% of the company, 29% of the free-float and about 35 days of trading volume.

The shares were offered at a price between Bt30.90 and Bt31.90, which translated into a discount of 4.1% to 7.1%. The price was fixed at Bt31.30 for a 5.9% discount and a total deal size of $466 million, which makes it the third largest block trade ever in Thailand, according to the source.

The deal was well covered — as evidenced by the fact that it was priced above the bottom of the range. About 40% to 50% was estimated to have been allocated to domestic Thai investors, while the rest went to international accounts. The buyers included a mix of existing and new shareholders.

GE Capital’s remaining stake will be locked up for six months.


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