Three Southeast Asian blocks raise $697 million

The vice-chairman offloads 60% of his stake in Singapore-listed Noble Group, Dairy Farm increases the free-float in Indonesian supermarket chain Hero and UBS sells a 4.2% stake in Thailand’s CP Foods as part of the unwinding of a swap transaction.

It turned out to be a busy night in the Asian capital markets yesterday as three separate vendors wanted to get their deals done before a series of holidays in Southeast Asian this week.

Shrugging off a mainly negative market performance earlier in the day on the back of dismal growth data in Japan, the deals raised a combined $697 million.

The largest of the three transactions was a sell-down by UBS in Charoen Pokphand Foods (CP Foods) that raised Bt10.91 billion ($353 million) block trade. UBS isn’t actually an investor in the Thai company, which produces fresh and processed food as well as animal feed, but the offering was triggered by the unwinding of a swap transaction with an undisclosed client. A source said the swap was replaced by a different financing tool.

In Singapore, Noble Group’s vice-chairman, Harindarpal Singh Banga, raised S$247.5 million ($202 million) by selling 60% of his stake in the supply chain manager and commodities trader. The deal came after the share price plunged 7.8% on Friday as Noble’s third quarter earnings missed analysts’ estimates, making the timing seem a bit odd. However, many investors apparently viewed the current share price as quite attractive and were happy to buy even at a somewhat tight discount.

The third deal of the night, a sell-down by the majority shareholder in Indonesia’s Hero Supermarket, at a significantly wider discount of up to 15%, but that was probably warranted since the deal accounted for close to 6,000 days of trading volume. However, given that the stock is so illiquid, investors welcomed the increase in the free-float and the chance to take a meaningful position in company, and the seller was able to raise Rp1.38 trillion ($142 million) without any difficulty.

In light of the market backdrop, and in line with the common practise over the past few months, the Noble and Hero trades were both well anchored before launch. CP Foods had a different kind of support, since all the investors that participated in the deal were existing shareholders in the company.

CP Foods
The deal comprised 322.5 million shares, which accounted for about 4.2% of the company and about 10 days of trading volume, based on the average daily turnover in the past three months. They were offered at a price between Bt33.84 and Bt34.92, which translated into a 3% to 6% discount versus yesterday’s closing price of Bt36.

The price was fixed at the bottom of the range for the maximum 6% discount.

The order book was kept open for about six-and-a-half hours until about 12.30am Hong Kong time to give the company’s existing shareholders on the US west coast a proper chance to look at the deal. And that seems to have been worth it since the demand included two very large orders from North America and in the end more than half the deal was placed with investors in the US or Canada, according to a source.

Most of the buyers were long-only investors, who have a long-term view on the expansion of the global food industry, the source said and added that most of the top guys in the book were either long-term holders of CP Foods or investors who have been buying the stock in the open market in recent months. There was also some hedge fund interest.

In all, about 40 investors participated in the transaction.

The stock has fallen about 14% from its 2012 high of Bt41.75 that it hit in May, although it held up well on Friday last week even though the company said its net profit dropped 53.3% in the third quarter from a year earlier.

CP Foods said the decline was mainly due to a narrowing of the gross profit margin of its farm business, which was affected by lower selling prices on meat products, as well as an increase in the price of raw materials for feed production compared to the previous year.

The company is 46.2% owned by Charoen Pokphand Group, a Thai conglomerate whose interests span from retail businesses and the manufacturing of motorcycles to property investments, pharmaceuticals and telecoms.

UBS was the sole bookrunner for the transaction.

Noble Group
This deal comprised 225 million shares, or 3.5% of the company, which were offered at a price between S$1.10 and S$1.12 — a discount of 3.9% to 5.6% versus yesterday’s close of S$1.165.

The block was said to have been well anchored at the bottom of the range at launch and that is also where it priced, resulting in the maximum 5.6% discount.

When the books closed at 9.30pm, the deal was said to be about 1.5 times covered with orders from close to 50 accounts. More than three-quarters of the demand came from hedge funds, but sources noted that Noble is a high-beta stock and also very liquid — last night’s trade accounted for just five days of trading — which appeals to hedge funds, and the company already has a large hedge-fund following within its current shareholder base. Indeed, a lot of existing shareholders came into the deal.

And apparently investors didn’t take it as a negative that an insider like Banga sold more than half of his holdings after a disappointing earnings report and a sharp drop in the share price. One source noted that being a non-executive director on the board, Banga is often privy to insider information and together with the usual earnings-related blackouts every quarter that means he has few windows to sell. The most obvious time to do so is right after an earnings release.

The current sale was supposedly related to personal estate planning and shouldn’t be viewed as a signal about his outlook for Noble, the source said.

Another source added that the vice-chairman hasn’t sold any Noble shares since 2010 and he is also not selling his entire stake. Banga will still hold about 147.5 million shares after this deal, which will be locked up for 90 days. Based on yesterday’s closing price, his remaining stake accounts for 2.3% of the company and is valued at about $140 million. The shares are held by a company named Lexdale International, which is controlled by Banga and his wife. Lexdale was also the seller of the block last night.

Some analysts revised down their recommendations on Noble to hold from buy after the company missed analysts’ third quarter estimates, but many also kept their buy or outperform ratings on the stock. As of yesterday, there were 12 buys, four holds and four sells on the stock, according to Bloomberg data. And after falling 7.8% on Friday, the share price lost just 0.9% yesterday, suggesting buyers were starting to appear.

And some investors did apparently take the drop as a buying opportunity. One of the sources noted that the lowest trading levels for the stock since 2009 has been around S$103, so the block pricing at S$1.10 could be viewed as fairly attractive. That said, the share price is currently 24% below its 2012 high of S$1.53 that hit in mid-February.

Citi, Goldman Sachs and J.P. Morgan were joint bookrunners.

Hero Supermarket
The third block was an entirely different type of transaction. The Indonesian supermarket operator is 94.3%-owned by Dairy Farm through a company called Mulgrave Corp and another 3.5% is held by a single family, leaving a free-float of just 2.2%. Indeed, a key reason for the sale was to improve the free-float.

Dairy Farm offered 444.058 million shares, which accounted for 13.5% of the company, or 5,972 trading days based on the average daily turnover in the past three months. They were marketed at a price between Rp2,950 and Rp3,300, which translated into a discount between 5% and 15.1% versus yesterday’s close of Rp3,475.

There was no information available early this morning about who bought the shares, but sources said the price would been fixed at Rp3,100 for a 10.8% discount.

The deal was well anchored by a combination of domestic and international accounts and the bookrunners had the entire deal essentially covered at launch. But other investors supposedly didn’t want to miss out and a couple of hours after the 5pm launch (Hong Kong time), the deal was said to be massively oversubscribed.

One key reason for the interest, aside from the increase in the free-float to 15.7%, is that it is quite rare to get an opportunity to buy a decent chunk of shares in an Indonesian consumer retailer. According to one source, the company is also viewed to be well managed and to have good growth story. It has recently secured the Ikea franchise for Indonesia and is due to open the first store in 2014.

The Dairy Farm ownership also makes investors more confident about the corporate governance practises. Dairy Farm, which operates supermarkets, hypermarkets, health and beauty stores, convenience stores, home furnishings stores and restaurants under well-known brands across Asia, is part of the Hong Kong-based, but Singapore-listed Jardine Matheson group. Dairy Farm’s remaining stake will be locked up for 90 days.

Bahana Securities and CLSA were joint global coordinators for the deal. UBS was a joint bookrunner, but wasn’t really involved in the execution.

¬ Haymarket Media Limited. All rights reserved.
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