Warburg Pincus has joined the list of investors monetising their investments in Asia, selling just over one-third of its remaining stake in Hong Kong-listed Intime Department Store Group. The sale, which came as the Chinese department store operator closed at a record high, was the second by Warburg Pincus in this stock in just five months and saw the private equity firm raise HK$1.03 billion ($133 million).
An investor in Intime before its initial public offering in 2007, Warburg Pincus offered 100 million shares at a price between HK$8.53 and HK$8.80, which represented a discount of 5% to 7.9% versus yesterday’s close. However, good demand from investors prompted the deal to be increased to 120 million shares, or about 6.8% of the share capital.
According to a source, the deal was more than two times covered by major and well-known long-only funds which jumped at the opportunity to pick up shares in a company that is otherwise not very liquid. Or as the source put it, it was “a chance to buy a meaningful stake which in the market may have taken months to accumulate”.
Indeed, the upsized offering accounted for about 70 days of trading, based on the average daily volume over the past month.
But with the stock having soared 6.7% to a record close of HK$9.26 yesterday on the back of a strong first-half earnings report, it was perhaps not too surprising that the price ended up towards the bottom of the indicated range – at HK$8.60, resulting in a 7.1% discount. Still, this was an improvement compared to Warburg Pincus’s previous sale of Intime shares in early April when the deal required a discount of 9.2%.
And since the share price has gained 14% since the April sale, the private equity firm was also able to realise a higher absolute price -- and thus a higher return on its investment -- this time around. The April sale comprised 105 million shares, equal to a 6% stake, that were sold at a price of HK$7.40.
Warburg Pincus made a series of investments in the Intime group in the run up to its listing in March 2007 for a total of $86 million. The average cost per share was about HK$1.49 and, according to the listing prospectus, Warburg Pincus held 22.5% of Intime at the time of listing. It then added slightly to its holdings in the open market and by the end of 2008 owned just over a quarter of the company. Following yesterday’s sale, its stake will drop to about 9.1% from 15.9%.
Sources say the deal had been expected after a three-month lockup on Warburg Pincus expired in July, and given that it is a pure financial investor, with no involvement in the day-to-day management of the company, there is unlikely to be much negative fallout from the sale. In fact, the divestment could end up being positive for the company in the long run as it will help increase the free-float somewhat. It was unclear last night if Warburg Pincus intends to sell down its entire stake, but in any case it is prevented from doing another deal for the next two months.
The investors who bought the deal were mainly Asia-based and, given the low liquidity in the stock, there wasn’t much participation from hedge funds.
Royal Bank of Scotland was the sole bookrunner for the transaction, having beaten a few other banks to the punch, including Morgan Stanley which arranged the previous sell-down by Warburg Pincus in April.