Thai fund sells $120 million stake in Central Pattana

Thailand Equity Fund offloads its remaining 4.9% stake in the Thai property developer at a 5.6% discount, while Chinese online video provider Tudou gets ready to price a US IPO of up to $180 million.
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CentralWorld in Bangkok, which opened in 2006, is Central Pattana's biggest shopping mall(AFP)</div>
<div class="ArticleImageCaption" style="text-align: left;"> CentralWorld in Bangkok, which opened in 2006, is Central Pattana's biggest shopping mall(AFP)</div>

A long-term shareholder sold its entire 4.9% stake in Thai commercial property developer Central Pattana last night in a deal that shows investors are looking for opportunities to put money to work.

Sure, global equity markets have gone through a significant correction during the past couple of weeks, but the past few sessions have brought a bit more stability and market watchers say there is a lot of interest in Southeast Asian markets in particular. Thailand, which is benefiting from a recovery in consumer confidence as political unrest has eased, is the second best performing equity market in the world year-to-date after Indonesia.

The Credit Suisse-led offering was launched at a base size of about $80 million, but came with an option to upsize by just over 50%. The option was exercised in full, resulting in a total deal size of Bt3.58 billion ($120 million). The price was fixed slightly above the bottom of the offering range at a 5.6% discount to yesterday’s close.

The fact that the exercise of the upsize option meant the seller wasn’t left holding a small position in the stock would have been positive for investors and might have increased their willingness to participate in the trade. The seller — Thailand Equity Fund — is a closed-ended fund that was set up in 2001 and includes both domestic and international investors. It first bought shares in Central Pattana in 2003 and before last night’s sale it was the company’s third-biggest shareholder, according to Central Pattana’s website. The fund reduced its holdings three or four years ago and the decision to sell the majority of its remaining stake now could easily have created an overhang — especially since the stock is quite illiquid. This was avoided by selling all the shares at once.

The deal was about one-and-a-half times covered after the upsize and, according to a source, it attracted a few more than 20 investors. The buyers included domestic accounts as well as international institutions and a handful or so of hedge funds. UK-based investors were said to have been particularly interested and the order book also included a small order from a sovereign wealth fund.

The initial offering comprised 70 million common shares, which was later increased to 106.1706 million shares. International investors were able to participate in the transaction by buying non-voting depositary receipts. The shares were marketed in a range between Bt33.50 and Bt35, which represented a discount of 2.1% to 6.3% versus yesterday’s close of Bt35.75. The final price was fixed at Bt33.75 for a 5.6% discount.

Bankers expect block trades to be a key focus among investors as they get ready to increase their equity exposure again. While clearly dramatic on paper, some argue that the recent downturn — at least in Asia — has been marked more by a lack of buying than by panic selling and investors are now keen not to miss the next leg up. And with Southeast Asian markets falling relatively less than markets in other parts of the world, low share prices are less of a deterrent here for shareholders who want to cash in, or for companies looking to raise new capital.

Smaller-scale deals in relatively illiquid stocks like Central Pattana — last night’s trade accounted for about 40 days' worth of trading volume — that come at decent discounts and trade in markets that are well-supported by domestic investors, might also be easier to make money on for investors than the big, liquid trades (in Chinese banks, for example) that are widely anticipated and tend to come at tight discounts. However, the number of investors participating in this particular deal was still quite small and according to sources, many international asset managers remain on the sidelines.

Equity markets have stabilised somewhat in recent days, but sentiment remains fragile and disappointing GDP data out of Germany yesterday saw Asian markets turn lower in the afternoon after opening on a positive note. Lingering concerns about the eurozone debt crisis also kept most European and US markets in negative territory overnight.

In Thailand the benchmark index fell 0.9% yesterday after three straight days of gains, but is still up 4.3% this year. Central Pattana fell 1.4% yesterday, but is up 34% so far this year and is currently trading only 5.3% below its 12-month high on August 1.

The block trade came a day after Central Pattana posted a net profit of Bt365 million in the first half, up 126% excluding a non-recurring write-off in the second quarter 2010. Revenues increased 18% in the same period due to improvements of new projects and organic growth of its shopping centre business.

On its website, the company describes itself as Thailand’s biggest retail developer, with a leading 24% share of the retail market in Bangkok. Central Pattana owns and manages 16 shopping centres, six office towers and two residential properties. It also owns two hotels, for which the management is outsourced. As of the end of the second quarter it also had four plots of land under development for new shopping centres and was doing major renovation on three of its existing properties. One of those — the CentralPlaza Lardprao — is due to resume operations this month, while the other two will remain closed into 2012.

Talk in the market suggests that there could be other blocks launching this week, if the secondary markets remain relatively stable. Initial public offerings, and other fully-marketed deals, are likely to be more challenging but there is a huge pipeline of deals that are expected to start investor education towards the end of this month or early September. In light of this, it is crucial that the deals that do come to market in the next couple of weeks aren’t priced too aggressively and that they trade well.

While most issuers have stayed on the sidelines during the past two weeks of equity market turmoil, there are those that have chosen to keep a brave face and go ahead with their issuing plans. One of those is Chinese online video provider Tudou Holdings, which was due to price a US IPO after the New York market closed this morning (Wednesday). The company, which is a rival to Youku.com that listed in the US in December last year, is aiming to raise between $168 million and $180 million, and yesterday sources said the deal was fully covered and likely to price within the $28 to $30 range.

Both Tudou and Youku are viewed as Chinese equivalents of YouTube, and Youku gained a massive 425% in the first four months after listing. It then came under pressure amid accusations of accounting fraud and poor corporate governance at a number of US-listed Chinese companies and because of a follow-on share sale, but even though it has lost the majority of those gains, it is still up about 100% since the IPO. Investors might be hoping for Tudou to copy those gains, especially since its shares are being offered at a valuation discount of about 70% versus Youku. There are also rumours that Chinese search engine Baidu is interested in buying the company, which could help support the share price after listing. Credit Suisse and Deutsche Bank are joint bookrunners for the IPO.

Meanwhile, Singapore-listed CitySpring Infrastructure Trust chose to go ahead with its S$210.2 million ($174 million) rights issue after unitholders approved the deal on August 8. Monday was the last day investors could buy units in the trust to gain access to the rights and the subscription will open tomorrow. Unitholders who don’t want to participate in the deal can sell their rights in the market between tomorrow and August 26. The offering will close on September 2.

The new units are offered on an 11-for-20 basis and at a price of S$0.39 apiece, which represents a 19.3% discount to the theoretical ex-rights price (Terp) and a 27.1% discount to the closing price on June 30 when details of the deal was first announced. Since then, CitySpring’s share price has fallen 24%, however, resulting in a significantly narrower discount. Yesterday’s closing price of S$0.405 was only marginally above the rights issue price at S$0.39.

But the deal is well supported by Temasek Holdings, which owns 27.8% of CitySpring and is its largest investor. In addition to taking up its own entitlement, the Singapore investment company has committed to buy up to 85% of the rights issue in case of a lack of demand from other investors. The remaining 15% is underwritten by DBS, Goldman Sachs and Morgan Stanley.

Earlier, Indonesia’s Bank Danamon, in which Temasek owns 67.37%, has announced a plan to raise up to Rp5 trillion ($586 million) from a rights issue that will allow shareholders to buy 144 new shares for every 1,000 existing shares. The bank is due to announce pricing details for the deal this week and existing shareholders will vote on the capital-raising at an extraordinary general meeting on August 24. Temasek will take up its full entitlement, while the remaining 32.6% will be underwritten by Citi and Deutsche Bank.

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