Two deals break deafening Asian equity silence

TWi Pharma's GDR sale and Hertz's block trade of Car Inc mark the first major ECM transactions in Asia-Pacific since late July.

Taiwan-listed TWi Pharmaceuticals and American car rental company Hertz reanimated Asia’s equity capital markets on Wednesday through the execution of two separate equity deals on the back of a strong rally in Asian equities.

Wednesday was described as the best window in recent months to pull off an equity transaction, according to a source familiar with the situation.

Most Asian exchanges traded up significantly in the afternoon after a sloppy morning trade. The rally was led by Japan, which rose 7.7% in the biggest single-day gain since October 2008. Hong Kong followed and ended the day up 2.4%, while the Taiex fell behind with only a 0.9% gain.

Few would have predicted a trade against a backdrop of market volatility that has been going on for months. In addition, Thursday’s Fed meeting has added uncertainties to the market and saw many investors on the sidelines.

That said, TWi Pharma and Hertz were able to pull off two deals and raised a combined $187 million. The Taiwanese high-end drug developer raised NT$2.8 billion ($87 million) through the sale of global depositary shares, while Hertz managed to complete a partial stake sale in Chinese auto rental company Car Inc for HK$775 million ($100 million).

The duo were the first major secondary market transactions since July 23 when Frasers Commercial Trust sealed a S$140.1 million ($102 million) placement in Singapore.

TWi Pharma

TWi Pharma is a stock relatively unknown to international investors but that did not prevent it from completing the first GDR sale in Taiwan after touch screen manufacturer TPK Holdings’ $383 million GDR/CB combo in May.

The deal was initially being marketed at NT$197 – NT$208 when the book opened at around 5pm Hong Kong time. Final pricing was eventually set at the bottom end, which means investors are getting the maximum out of the 15.4% - 19.9% discount range against the stock’s latest close at NT$246.

A total of 14.4 million global depositary shares, each equivalent to one common TWi Pharma share, were sold to investors outside Taiwan. The GDS represents 11.3% of the pharmaceutical company’s enlarged share capital, according to a termsheet seen by FinanceAsia.

Investors showed strong price sensitivity for a number of reasons. The typical long T+3 settlement and T+8 trade date for Taiwanese GDR sales mean investors will have to wait about two weeks before they can trade the stock, the source familiar with the matter said. Also, the small-cap company and illiquid stock mean investors are unlikely to borrow stock for hedging.

A wider discount was also required because the stock has traded limit-up on the Taiwan stock exchange with a 10% gain on expectation that the Taiwanese government will issue a national biotech development plan soon. As a result, biotech stocks such as Taigen Biopharmaceuticals and PharmaEssentia have mostly traded up by at least 5% on Wednesday.

The trade was borne out of reverse inquiry and was said to be 80% covered at launch. That allowed the bookrunner to swiftly cover the book within 20 minutes after launch, the source said.

At the end, the top five accounts were given over 60% of the total deal and the top 10 were given over 80%. The book was very well-oversubscribed with participation mainly from US healthcare specialists.

TWi Pharma is a high-end developer of drugs for innate inflammatory related diseases in metabolic, ophthalmology, and dermatology areas.

It will use the proceeds for research and development of generics, as well as for investments in manufacturing plants, equipment and subsidiaries, the termsheet shows.

Morgan Stanley ran the TWi Pharma GDR sale.

Car Inc

Elsewhere in Hong Kong, Hertz showed impeccable timing in its sale of Car Inc shares on a day when the sector was buoyed by news that China Grand Automotive Services entered talks to acquire Baoxin Auto Group, the largest Chinese dealer of the BMW auto brand.

Baoxin Auto eventually closed 36% higher, while Car Inc shares gained 3.8% on Wednesday.

Hertz moved swiftly to launch the block of 59.6 million Car Inc shares shortly after 5pm Hong Kong time. Initial price range was given at HK$13.01 – HK$13.37 per share, or a 3.0% - 5.6% discount to the stock’s Wednesday close at HK$13.78.

Given the market backdrop it comes as no surprise that the sale was eventually finalised at the bottom end of the price range at HK$13.01. Investors picked up the stock at a 5.6% discount, or a 1.8% discount excluding Wednesday's 3.8% gain.

Completion of the deal saw Hertz trimming its stake to 13.62% from 16.12%. It remains the second-largest shareholder after Grand Union Investment Fund.

Year-to-date Car Inc gained 35% and outperformed the Hang Seng Index’s 7% loss. It has come off from a June peak of HK$19.96, but still offers a return of 62% for investors that bought into its initial public offering in September last year.

That has prompted some investors to cash in shares. Private equity firm Warburg Pincus, which was a cornerstone investor in Car Inc's IPO, completed a well-timed $401 million block trade in May that was eventually priced at HK$18.50, or a 6.5% discount. Since then the stock has begun to fall.

Still, analysts are expecting more upside for Car Inc as the industry pushes for more discipline on competition, pricing and quality assurance. Of the 15 analysts that cover the stock, 14 recommend a buy with a maximum 12-month target price of HK$20.07, representing a 45.6% upside to the current level.

Goldman Sachs was the sole bookrunner of the Car Inc block.

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