Still, the Sino-Ocean deal was increased by one-third from 150 million shares to 200 million. This allowed the seller û a Morgan Stanley real estate fund called SSF Livingstone that held about 7% before this deal û to raise HK$1.18 billion ($152 million). The shares, which accounted for 4.5% of the share capital and 10 days of trading volume, were priced at HK$5.91 apiece for a discount of 7.5% to FridayÆs closing price of HK$6.39. At the top of the indicated range, the discount would have been 3.8%.
Despite being 80% larger at HK$2.14 billion ($275 million), the Gome block was priced at a tighter discount of 6.5% to FridayÆs close, representing an absolute price of HK$17.10. The 125.4 million shares, which were sold by chairman Wong Kwong Yu, were offered to the market at a price of HK$17.10 to HK$17.55, equal to a discount range of 4.0% to 6.5%. However, in a statement to the Hong Kong stock exchange, Gome said the shares had been bought by sole bookrunner Goldman Sachs at a slightly lower price of HK$17 apiece. The deal accounted for 3.9%, or about 15 daysÆ trading volume.
The Gome sale came after the company reported fourth quarter earnings after the market closed on Thursday. The net profit, at Rmb376.8 million ($54 million), was below the average analyst forecast, but overall the earnings showed an improvement in both sales and margins and helped the share price edge 1.3% higher on Friday to a close of HK$18.28. The stock has bounced 22.5% since it hit a 2008 low of HK$14.92 in mid-March and is now only 11.7% below its record high of HK$20.70 in early January. Analysts are generally positive on the company, which continues to expand through acquisitions, with 12 out of 14 followers of the stock rating it a ôbuyö.
Investors also donÆt seem too bothered about the chairman selling as he has been trimming his stake by small amounts several times since the company went public through a backdoor listing in mid-2004. Together with associates, he will still hold about 35.5% after this transaction.
According to a source, the offering was very well covered and included some chunky orders from both existing and new investors to the stock. In all, about 35 investors participated in the deal. Most of the demand came from Asian or Asia-based global accounts but there was also decent interest from some of the overnight desks in the US.
The Sino-Ocean deal, which was arranged by Citi and Morgan Stanley, attracted about 40 investors and while there was no information on the subscription rate, the interest would have been at least 1.5 times the base deal size to allow for it to be upsized. A source says the demand was primarily Asian and came from a mix of long-only investors and hedge funds.
This was the second sell-down in Sino-Ocean by a pre-IPO shareholder in two weeks and followed the expiry of a six-month lock-up at the end of March. The first sale on April 3, by a fund run by hedge fund manager Pacific Alliance Investment Management, comprised 80 million shares that were priced at the top of the offering range at HK$7.78, or at a 4% discount to the latest close. Since then, however, the share price has fallen almost 27%, including a 3.6% drop on Friday, which means the Morgan Stanley fund wasnÆt exactly selling out of a position of strength. In fact, FridayÆs close is 17% below the IPO price of HK$7.70 and only slightly above the record low close of HK$5.68 from mid-March.
However, a strong earnings report by Agile Property during the lunch break on Friday gave rise to some optimism among investors about Chinese property plays and put the bid back into some sector stocks during the afternoon. Consequently, this was probably as good an opportunity as any to put a block of Sino-Ocean shares into the market. The 200 million shares accounted for 15% of the free-float and would have allowed investors a chance to buy a bigger quantity of shares than they could have done in the market. According to its own estimates, Sino-Ocean is the largest real estate developer in Beijing in terms of number of square feet sold.
AgileÆs net profit increased by 69% in 2007 to Rmb2.1 billion ($300 million) and the company said recent acquisitions have brought its total land bank to 28.4 million square metres, which is enough for eight years of development. Its average land cost is only Rmb619 per sqm, which suggest the company is well positioned to realise a sizeable profit in the years ahead.
On the other hand, investors were a bit nervous ahead of CitiÆs earnings that were due later in the evening and this may have contributed to the price sensitivity in both deals. A day earlier, a $702 million secondary share placement in shoe manufacturer and retailer Belle International was priced above the mid-point of the range for a 6.1% discount, while an $87 million block in coal producer China Shenhua Energy priced at a 2.6% discount û the tightest for any Hong Kong placement done through a bookbuilding this year even though it was fixed at the wide end of the range.
In the end, CitiÆs results turned out not to be as bad as the market had feared û the first quarter loss of $5.1 billion was half of the $10 billion shortfall in the fourth quarter last year û and the Dow Jones added 1.8% on the day.