TPG cashes in $70 million worth of shares in Lenovo

TPG sells part of its holding at a tight discount following a jump of 50% in Lenovo's shares during the past six months.

TPG has raised HK$539.2 million ($69.5 million) by selling a portion of its existing shareholding in Lenovo. It's the second time the investment firm has reduced its holding in China's largest computer maker during the past six months, taking advantage of the strong momentum in the stock.

Texas-based TPG sold shares in Lenovo at HK$5.35 apiece, the low end of an indicated range. It sold 100.8 million shares, accounting for 1% of the PC maker's existing share capital. TPG retains a stake of between 2% to 3% following the placement, according to Macquarie Securities, suggesting that the latest sale was not motivated by a gloomy outlook for the company or because TPG thinks the stock has reached a peak.

Shares in Hong Kong-listed Lenovo have soared 50% since September to HK$5.49 on Tuesday before the placement took place.

TPG offered the shares at between HK$5.35 and HK$5.45 per share, representing a tight discount of 0.7% to 2.6% from the last closing price.

Shares in Lenovo have been trading at a daily average volume of 52 million during the past three months, which allowed the offering block to be quickly absorbed by the market. UBS was the sole bookrunner of the secondary sell-down.

TPG has agreed not to sell any more shares for the next 60 days.

In September, TPG and two other institutional investors -- General Atlantic and Newbridge Asia -- raised $133 million from selling 291.5 million shares in Lenovo. They were offered at a price of between HK$3.55 and HK$3.57, which was a discount of between 2.5% and 3% compared to the closing price at the time. The final price was set at HK$3.55.

The three investment firms, which paid $350 million in May 2005 for preferred shares and warrants that can be exchanged for Lenovo stock at HK$2.72 a share, booked a bigger profit after they sold 350.46 million shares at HK$8.16 apiece in November 2007, according to data from Bloomberg.

Chinese authorities don't like to see foreign funds having too much of a stake in the nation's publicly traded companies and are encouraging home-bred investment firms to catch up with their overseas counterparts in the equity markets.

The government has helped establish Bohai Industry Investment Fund and Citic Private Equity Funds Management.

US-headquartered Lenovo announced early this month that its operating profit for the third fiscal quarter (ending December 31, 2009) was $99 million, double the profit of the previous quarter, supported by a 33% year-on-year increase in sales which reached $4.8 billion. Basic earnings per share in the three-month period was 0.86 US cents.

Following the earnings report, Macquarie Securities said it would maintain its outperform rating on the company, which is becoming a key beneficiary of the recovery in corporate IT spending.

"We expect a meaningful boost from PC renewals in the corporate segment this year, and as Lenovo is more exposed to the corporate market, it stands to be one of the beneficiaries if this scenario takes place, discounting its recent efforts in boosting its exposure towards the consumer segment," wrote Patrick Yau, a technology analyst at Macquarie.

Despite a large sales network from the US to Africa, Lenovo's home market is still its major growth driver. Lenovo's PC shipments in China increased 54% year-on-year, growing faster than the overall industry increase of PC shipments in China of 41%, according to the company.

 Although the PC maker has pinned its hopes on international growth, and strives to turn itself into the first truly global Chinese company, it was China's effort to boost domestic consumption through a massive fiscal stimulus that supported Lenovo's results.

The Chinese government has earmarked some of the Rmb4 trillion ($585 billion) stimulus to subsidise the purchase of computers by people in rural areas. Lenovo is introducing more than a dozen models priced below Rmb3,500 to cater to this market.

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