Tianjin Port Development raises $318 million from placement

The final price is fixed slightly below the mid-point of the indicated range, but the deal attracts ôstrongö demand from over 100 investors.

Tianjin Port Development Holdings raised HK$2.46 billion ($318 million) from a share placement late Tuesday to fund a planned acquisition. The Tianjin-based port operator sold approximately 986.5 million new shares at HK$2.50 apiece in a popular deal that sources said received "strong" demand from over 100 investors during a two-hour marketing period.

The final price was fixed a tad below the mid-point of the indicated range, resulting in a 15% discount to Tuesday's closing price of HK$2.94. The shares were offered to investors at a price ranging from HK$2.41 to HK$2.60 each, which translated into a discount of between 11.6% and 18%.

The stock finished 1.7% lower at HK$2.89 yesterday after trading around HK$2.80 for most of the session. The intraday low was still 20 HK cents above the placement price.

The placement represented more than 400 trading days and approximately 55.2% of Tianjin Port's 1.787 billion outstanding shares, and will account for about 16% of the total issued share capital once a previously announced acquisition is completed. That acquisition will see the total number of issued shares climb to 6.158 billion.

Tianjin Port Development said in mid-March last year that it had agreed to buy a 56.81% stake in its sibling group -- Shanghai-listed Tianjin Port Holdings -- from their mutual parent company Tianjin Port (Group) for HK$10.96 billion. The net proceeds from Tuesday's placement will be used to settle part of the HK$4.07 billion cash portion of the acquisition cost of that deal, people familiar with the company said. The rest of the payment will be covered by the issuance of approximately 3.29 billion new shares to a subsidiary of Tianjin Port (Group).

Participants in the deal consisted of "a good balanced mix" of investors, including hedge funds, high-net-worth individuals and private banking clients. Most of them were from Asia and Europe. There were very few US investors as the offering closed right before the US markets opened and thus they had very limited time to participate, sources said.

Aside from raising cash, the placement will also ensure that the company will maintain a free-float of at least 25% even after it issues the new shares to Tianjin Port (Group) to pay for the acquisition of Tianjin Port Holdings. Without the placement, the portion of the company held by public shareholders would have fallen to 11% from about 32% now, once those shares were issued, well below the minimum 25% that is generally required for a Hong Kong listed stock. After the placement, the free-float will be 25.3%, according to a statement filed with the Hong Kong stock exchange yesterday.

The deal was arranged by Bank of America Merrill Lynch, Citic Securities and Morgan Stanley.

This was the first share placement by a Hong Kong-listed company this year. The most recent placement came on December 17 when Minmetal Land, the real estate arm of steel and metal importer and exporter China Minmetals Corp, raised $123 million at a 13.1% discount. That deal was led by BOC International. 

Tianjin Port Development is principally engaged in container handling services at the port of Tianjin, primarily through its subsidiaries, associates and jointly controlled entities. The port operator handled about 4.4 million TEUs (twenty-foot equivalent units) of containers in 2008 and 2.17 million TEUs in the first half of 2009.

"The successful placing is the last key step to the consolidation of assets of two companies at the port of Tianjin, which are listed on different stock markets. It is an important milestone in the history of Tianjin Port Development, and will help promote the development of Tianjin into a shipping and international logistics centre in Northern China," Yu Rumin, chairman of Tianjin Port Group, said in a statement released by the company yesterday.

Chinese port operators saw their earnings shrink as the country's exports fell by around 17% in 2009. Tianjin Port Development has underperformed other Chinese port operators, with its profitability suffering due to large new projects, according to analysts at Citi's investment research division. Indeed, the stock has traded around HK$3 since early June last year, while the rest of the market has been booking significant share price gains.

After a 45.8% drop in 2008, Tianjin Port Development's net profit tumbled to HK$15.9 million in the first half of 2009 from HK$140.7 million in the same period the previous year.

The company attributed the losses to cooling market demand and declining charges for cargo handling. In the first half of 2009, profit from port cargo handling plunged 79.4% year-on-year to HK$25.55 million, while its sales business earned HK$2.02 million.

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