A 175 million primary share top up placement for Anta Sports Products fell foul of an abrupt change in market sentiment overnight in the US on Tuesday, prompting the Hong Kong-listed stock to fall just below the transaction's issue price when it resumed trading on Wednesday.
The group picked a very unfortunate evening to launch the deal, which went on to raise HK$3.792 billion ($488 million) after pricing at the bottom of its HK$21.67 to HK$22.13 indicative range.
US equity markets suffered an unusually sharp drop during trading on Tuesday, with the S&P 500 closing the day down 1.2% as investors took profits from stock markets, which appear to be running ahead of expectations for global reflation.
Sole bookrunner Bank of America Merrill Lynch started taking orders for the placement at 7pm Hong Kong time. It had the book two-times covered when the US market suddenly lurched downwards about three hours later.
Prior to this, most orders had been coming in towards the bottom end of the range, but were not acutely price-sensitive according to observers. But after markets turned, a decision was taken to price the offering right at the bottom of the range on a 7.98% discount.
But this was not enough to save the deal from closing Wednesday down 8.07% at HK$21.65. "It's never ideal when a block trades below issue price and unfortunately it was about two percentage points below issue for much of the day," one banker commented.
Related companies such as Li Ning also had a difficult day, with the sports apparel manufacturer slipping 3.6%. The overall Hang Seng China Enterprises Index fell 1.76%.
A total of 60 accounts participated in Anta's deal with a split which saw the top 15% take 70%. Observers said there were a good mix of long only and hedge funds, with most paper placed in Asia, followed by the US, with limited interest from Europe.
The deal represented 6.6% of the group's share capital and about 40 days trading volume. Founder Ding Shizong and his family own 66.5% of the company and subscribed to the deal to maintain their current shareholding level.
Market conditions aside, the transaction was always going to need a fairly sizeable discount because the stock has had such a strong run and is trading about one standard deviation above its five-year average.
Based on Tuesday's close, Anta was valued at 18.3 times 2017 consensus forecast earnings, and 15.9 times 2018. Based on Wednesday's close the respective figures are 16.9 and 14.6 times.
Its five-year average stands a shade below 15 times, while its peak valuation in late 2015 stood at 21 times.
Year-to-date, Anta is down 6.48%. However, prior to this its stock price had risen 76% from its HK$14.24 February 2016 low to a HK$25 peak late this February.
Since then, analysts say it has been subject to profit taking, although two thirds of the street still have a buy rating and the rest a hold rating on the company.
The trigger for the recent sell-off was the group's strong 2016 results, which prompted a bout of profit taking.
The company reported a 24.6% increase in gross profit to Rmb6.49 billion and provided forward sales guidance for the first time.
It said it expects overall sales to increase 15% in 2017, with e-commerce sales expected to jump the most (50%) followed by its FILA brand goods (40% to 50%) and childrenswear (30%).
It is also opening a logistic delivery centre to reduce delivery times from 45 to between 15 and 30 days.