Trades in HDFC and Maybank raise a combined $2 billion

Carlyle exits HDFC through an $838 million block, while Maybank taps the market for $1.19 billion of fresh capital through Malaysia’s largest ever overnight trade.
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The HDFC deal removed an overhang caused by Carlyle’s residual position
<div style="text-align: left;"> The HDFC deal removed an overhang caused by Carlyle’s residual position </div>

The Asian equity capital markets got hit with more than $2 billion worth of financial paper at the end of last week, but thanks to significant domestic demand and a rigorous wall-crossing activity in the case of one of the deals, the market had no problem absorbing the stock. Never mind that the two transactions came in a week when Hong Kong was closed on Monday and Tuesday and the monthly US payrolls report was due late Friday.

First out was US private equity firm Carlyle, which sold its remaining stake in India’s Housing Development and Financing Corp (HDFC) through a Rs43.32 billion ($838 million) block trade. The deal was done on Thursday evening, but the final price and allocations were not released until after shares were crossed on the Indian exchanges before the opening on Friday.

It was followed by Malaysia’s Maybank, which raised M$3.7 billion ($1.19 billion) of fresh capital through a follow-on share issue after the Asian markets closed on Friday.

Both deals were supported by the fact that they were treated as liquidity events that allowed investors to take a meaningful position in one go without the risk of pushing up the share price. Liquidity is a key issue in Malaysia where domestic asset managers tend to buy stocks for the long term and big funds are often happy to pay up to get access. As the largest ever accelerated bookbuild in Malaysia, the Maybank trade provided a good opportunity for everyone with a desire to increase their exposure to the country.

Meanwhile, the HDFC transaction removed an overhang caused by Carlyle’s residual position and will likely be the last big block of shares to be sold in the Indian financing company for a while — there have been four trades during the past 15 months. After Carlyle’s exit, the largest institutional shareholder in HDFC is Indian insurance giant LIC, which rarely makes any big sales, and follow-on share sales through qualified institutional placements (QIPs) are few and far between these days. As a result, many investors felt a need to participate in this particular deal.

Carlyle sold all its 57 million shares, which accounted for 3.7% of the outstanding share capital and about 20 days of trading volume. They were offered at a price between Rs760 and Rs781.25 each, which translated into a discount of 1% to 3.7% versus Thursday’s closing price of Rs789.05 on the National Stock Exchange (NSE). Not surprisingly, given the tight range, the price was fixed at the bottom of the range for the maximum 3.7% discount.

According to a source, the deal was well covered with most of the demand coming from domestic mutual funds. However, there were also some orders from long-only funds in the US and rest of Asia, while hedge funds were largely absent. About 50 accounts participated in the transaction, the source said.

As is typically the case on deals that price at the bottom, the bookrunners lost a portion of the deal as the shares were crossed on the Indian exchanges before the opening on Friday. This happens because the cross of block trades in India isn’t protected, enabling investors or traders who didn’t participate in the placement to “steal” shares by placing a buy order at or above the placement price that will then get filled by the automatic matching system. The source said the slippage on this particular deal was about 15%, which is relatively low.

The deal, which was arranged by Citi, launched close to 8pm Hong Kong time on Thursday on the back of a second round of reform measures announced by the government after the close of trading, including a decision to increase the foreign ownership limit in the country’s insurance companies to 49% and to open up the pensions sector to foreign investment for the first time. The measures were welcomed by commentators and most people expected the stock markets to rally on Friday. Initially the market was up, and HDFC, which is one of the biggest constituents in the NSE’s 50-share Nifty index, was holding above the placement price.

However, almost one hour into the session, a local brokerage firm put through a series of erroneous orders that wiped 900 points, or more than 15%, from the Nifty index, causing an automatic trading halt and a lot of confusion. Trading resumed after 15 minutes and the index bounced back from the low point. However, it never fully recovered and finished the day 0.7% lower, while most other Asian markets were up.

In a statement the NSE said there was no technical glitch in its trading system and noted that the crash was caused by local brokerage firm Emkay Global Financial Services, which had input 59 separate orders worth a total of $125 million at prices well below the market level. The exchange and the Indian securities regulator both said they will investigate the incident.

HDFC adjusted lower following the index crash and then proceeded to trade below the placement price for the rest of the session. It finished the day 5% lower at Rs745.95, which left it 1.8% below placement price.

This was the second sale of HDFC shares by Carlyle since it first invested in the company in 2007. At the end of January, the US-based private equity firm sold about a quarter of its stake, raising $270 million. That deal was done at a price of Rs677 per share, which represented a 3% discount to the market price at the time. A month later, Citi sold its remaining stake in HDFC through a $1.9 billion block trade that ranks as the largest ECM transaction in India this year. By then the share price had come down a bit and Citi sold the shares at a price of Rs657.50 per share, a 6.25% discount.

After hitting a 2012 low of Rs620.90 in mid-May, HDFC has had a strong run and before the Carlyle sale it was up 21% year to date, matching the gain in India’s benchmark indices.

The Maybank transaction was heavily anchored by Malaysian and international long-only investors, giving the bookrunners confidence to go ahead on a Friday evening. According to a source, one domestic investor had agreed to buy 70% of the base deal at a tight price and virtually the entire deal was covered at launch. However, incremental demand by both domestic and international accounts allowed the upsize option to be exercised in full and the price to be fixed near the top of the range.

Apparently the bank was keen to get the deal done as soon as the bookrunners felt there was enough investor interest at the price it was targeting and when that all came together on Friday there was no reason to wait, one source said.

Maybank offered 300 million shares plus an option to upsize the deal by 37% to 412 million shares. And as noted this was exercised in full at the time of pricing. At the enlarged size the deal accounted for 5.2% of the company and about 25 days of trading volume.

The shares were offered at a price between M$8.80 and M$8.90, which translated into discount of 1% to 2.1% versus Friday’s close of M$8.99. However, the deal was marketed versus the five-day volume-weighted average price, which resulted in a slightly wider discount.

The price was fixed at M$8.88 per shares, which equalled a discount of 1.2% versus the latest close and 2.1% versus the five-day average of M$9.07. Aside from falling slightly during the past three sessions, Maybank’s share price has dropped 5% from the 52-week high of M$9.46 that it hit in mid-September, which may explain why the issuer was so keen to get the deal done. As of the close of trading on Friday, Maybank was up 48% year-to-date.

The offering, which was open for just over two hours in the early evening Hong Kong time, attracted more than 60 investors and the demand was said to have been heavily skewed towards long-only investors, which is no surprise given the tight discount.

In a statement issued on Friday, Maybank said the placement will strengthen its capital base and support its growth objectives, both in Malaysia and the rest of the region. It will also enable the lender, which is the largest financial institution in Malaysia, to meet the more stringent capital requirements under the Basel III framework.

Maybank Investment Bank and UBS were joint bookrunners.

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