Euroweek equity roundup, August 6

Euroweek equity capital markets roundup, August 6 2010

SKS Microfinance and Berau Coal seal IPOs

Two initial public offerings were completed in Asia this week, with India’s SKS microfinance raising Rp16.29 billion (US$342 million) and Indonesia’s Berau Coal Energy Rp1.36 trillion ($151 million).

The SKS deal was widely considered a success. While not the first listing of a microfinance institution, such deals remain unusual and this one demonstrated clear appetite for the business model. People close to the deal say that the qualified institutional buyers (QIB) tranche, which accounted for about 60% of the 16.79 million shares sold, was about 20 times covered, and the overall deal, including a 30% distribution to retail investors and 10% to non-institutional investors (mainly high net worth individuals), about 10 times.

As is common in India, the sale process started out with the building of a book of anchor investors, who came in at Rs985 per share, the top end of a Rs850-985 marketing range. Eighteen anchor investors, including JP Morgan Chase, ICICI Prudential, Morgan Stanley and representatives of the Abu Dhabi Investment Authority, took part. That price is equivalent to 3.8 times book value, post-deal.

The retail side of the deal did not quite reach the same high price as the QIBs, instead selling at 50 rupees lower per share at Rs935. QIBs were limited to 60% of the deal as is commonplace in India.

“Clearly for global investors, there are not a lot of listed microfinance businesses,” says someone close to the deal. “Global investors warmed as much as anything else to the fact that the business model is most definitely scalable and set for growth.” Investors did not appear to find the premise of the business model – lending to the world’s poor – offputting. “I think it comes down to non-performing loans, given who your customer is. That’s clearly an area investors needed to get comfortable with, and they did.” Nor were they concerned that rates of growth in microfinance lending are unsustainable, as many fear: SKS already has 6.8 million borrowers and has lent out more than $3 billion.

Citi, Credit Suisse and Kotak Mahindra were bookrunners.

In the other deal, Berau Coal Energy made a success of an IPO it had previously downsized. Originally, the Indonesian coal company had sought to sell seven billion shares before cutting the objective to three billion after receiving modest feedback from international investors. In the event, it was able to upsize it some of the way back, to 3.4 billion, and priced at the top end of the Rp300-400 per share range, raising a total of Rp1.36 trillion.

Joint global coordinators Credit Suisse and JP Morgan, who worked with domestic lead managing underwriters Danatama Makmur and Recapital, had initially found international investors were too price sensitive to be expected to play much of a role in the deal; the decision to downsize was taken so as to ensure it could be covered purely by domestic demand if necessary, with domestic buyers showing less price sensitivity. But as sentiment improved, internationals came back into the deal, resulting in the increase in size, and also leading to a surprising 50-50 international-domestic split, compared to expectations of 70% of the deal being taken up domestically. Eventually the book was three times covered.

“Indonesia is not everybody’s cup of tea, but there are a number of investors with specific Indonesian funds who all got involved,” says someone lose to the deal.

Trading should begin on August 19, while a separate general retail offer opens on August 10.

Block trades continue with Poly and Longfer

The recent trend for block trades in Asia continued this week with three new deals: a modest selldown of Ping An’s stake in Longfer Properties, a placement for Brightoil Petroleum, and a more widely remarked deal for Poly (Hong Kong).

Poly, the Chinese real estate developer, raised HK$3.52 billion (US$452 million) in a deal led by joint bookrunners BOC International, Citigroup and Standard Chartered.  The deal was a top-up share placement and was upsized from 350 million to 400 million shares.

The Poly deal came at a 6.68% discount to the previous closing price of HK9.43. With an indicative range of HK$8.68 to HK$9.05, the deal was priced at HK$8.80 per share. Funds will be used to increase the company’s land bank, among other things.

“It went well,” said a banker not involved in the deal. “Real estate-focused investors say it was well covered.”

Bankers were less sure about a far smaller deal, in which Ping An, the Chinese insurer company, sold 32.9 million shares in Longfor Properties through UBS, raising US$36 million in a more tightly priced placement through UBS. “It got done, but the pricing was incredibly tight, which speaks to attitudes about risk appetite,” said one commentator.

The trade priced at HK$8.59, a 3.5% discount to the previous close, which was the bottom of a 0.5%-3.5% range but still considered very tight, particularly given a fall in the share price the following day which meant investors in the trade were still paying more than they would have done 24 hours previously.

Ping An was selling after the expiry of its lock-up as a cornerstone investor in Longfer, which is a Hong Kong-listed developer.

A third placement took place when Brightoil Petroleum raised HK$1.04 billion in a top-up placement of 300 million shares. This deal priced towards the bottom of a HK$3.41-3.56 range, at HK$3.45 per share, a 9% discount to the previous day’s close.

This placement, sold led by BOC International, was more than three times oversubscribed, yet an option to upsize 100 million shares was not exercised. 75% of the placement went to institutional and 25% to retail investors. Most investors were long only and hedge funds based in Asia.

Brightoil plans to acquire Access Wealth Holdings, which owns a petrochemical enterprise called Golden Sea (Zhenjiang).

Bankers expect more block deals in the weeks ahead.

Other deals round-up

China Construction Bank’s planned rights issue, which may raise up to RMB75 billion (US$11 billion), has cleared its main regulatory hurdle by gaining approval in principle from the China Banking Regulatory Commission.

CCB will sell up to 630 million A-shares and 15.7 billion H-shares in its rights issue, at a ratio of 0.7 shares for every 10 outstanding. Six banks will lead the considerably larger H-share offering: internationals Bank of America Merrill Lynch, Credit Suisse and Morgan Stanley, and mainland houses CCB International, CICC and Citic Securities. CICC will handle the small A-share rights issue.

Attention will now shift to the order of the major rights issues due from CCB, Bank of China and ICBC. Those close to the deal have been reluctant to try to predict a timetable, but October seems likely for CCB, which may well be the first of the three to launch.

There remains some concern about the volume of Chinese bank stock hitting the market in a short space of time, but bankers are confident. “While the headline looks like a large number – and it is – when you take into account the major shareholder [Central Huijin, controlled by China Investment Corporation] owns on average about 60%, the net ask is not that large,” says one. “We think it’s very doable.”

A number of US IPOs are underway for Chinese and Indian businesses. Ambow Education, a Chinese educational group, is amid a New York Stock Exchange listing which priced this week at US$10 per American Depositary Share, in a deal that will raise US$106.8 million. This was the bottom of the $10-12 range. Goldman Sachs and JP Morgan are leading the deal.

As reported last week, China Kanghui, a medical devices manufacturer, is planning a US$75 million listing on the New York Stock Exchange, with bookbuilding due to close next week. Morgan Stanley, Piper Jaffray and Canaccord Genuity are leading that deal. And MakeMyTrip, an Indian online travel services company, is raising up to US$100 million in a Nasdaq listing, sole led by Morgan Stanley. Both deals are understood to be proceeding well.

Looking further ahead, Indonesian miner Toba Coal has appointed global coordinators for its IPO, which is expected to raise up to US$400 million; Morgan Stanley, UBS and Danareksa have won the mandate. Elsewhere, there were few mandate pitches or bakeoffs to report in a typically quiet early August week; more activity is expected later in the month ahead of a busy September.

Market chat revolves around block trades and convertibles, particularly from Taiwan.