Euroweek: Equity capital markets round-up, October 1 2010

Euroweek ECM roundup, October 1 2010

ICBC and China block trades

Goldman Sachs joined the trend for major Chinese block trades this week with a HK$17.46 billion (US$2.25 billion) partial sell-down of its stake in Industrial and Commercial Bank of China (ICBC). Following Vodafone’s full exit from China Mobile and Newbridge’s from Ping An earlier in the month, the three blocks raised just under US$10 billion between them.

The deal was popular: covered in half an hour, it was upsized by more than 10% from an original target of HK$15.9 billion. 2.75 billion H-shares were offered initially at HK$5.70 to HK$5.79, and priced at HK$5.74, representing a 3.9% discount to the previous close of HK$5.97. Eventually 3.04 billion shares were sold, representing 0.9% of the ICBC share capital and 23% of Goldman’s stake in the bank. Goldman – which was also sole bookrunner on the deal – also raised HK$14.8 billion in an earlier selldown in June.

Goldman, which has been free to sell since a lock-up expired in April, may have chosen to sell now in order to get ahead of a rights issue from ICBC which may raise up to RMB45 billion (US$6.6 billion) and is expected later this year. Goldman now holds about 10.1 billion shares, representing 3.1% of ICBC and 12.3% of the H-share capital. Its stake was worth around US$7.5 billion based on yesterday’s share price, having already raised US$4.1 billion in this year’s block trades – not a bad return on Goldman’s original US$2.58 billion investment before the 2006 IPO.

Another of the year’s big block trades, the US$6.5 billion selldown of China Mobile’s stake in Vodafone, was neatened this week after the three leads – Goldman, Morgan Stanley and UBS – sold the stock they had been unable to clear in the initial sale. It is believed the three may have sold as much as US$2 billion between them this week, clearing the overhang left by the initial deal – Asia’s largest ever block trade.

Elsewhere, Goldman was involved in still another block selldown at the end of last week when Texas Pacific Group sold its remaining stake in Singapore’s Parkway Life REIT with Goldman as sole bookrunner. The sale of 56.25 million shares came at the bottom of a S$1.56-1.62 range, a hefty 6.6% discount to the previous close. TPG’s stake represented 9.3% of the REIT’s share capital.

China Unicom

China Unicom completed Asia’s largest ever convertible bond in ex-Japan Asia on Monday, raising US$1.838 billion.

This comfortably beat the previous record set by Sinopec, which raised US$1.5 billion in 2007, although there has been a larger exchangeable by Hutchison Whampoa.

The deal used a five year put three structure and is convertible into either Unicom shares in Hong Kong, or American depositary shares in New York. The issuer call after three years is subject to a 130% trigger. It priced at the midpoint of the range both in terms of coupon (0.5% to 1%, set at 0.75%) and conversion premium over the Monday close (33% to 38%, settled at 35.5%). This continued a trend for high conversion premiums in recent Asian CBs, following 36.4% for Shui On Land, 25% for LG UPlus and 20% for Maoye International earlier in the month.

It was understood to have been twice covered and to have brought in over 150 investors, including a range of outright investors and hedge funds. Bookrunners CICC, Goldman Sachs and Nomura sought to complete the deal between the Monday evening close in Hong Kong and the Monday morning opening in New York, before the American depositary shares started trading, and it is understood this was successful with the book covered in less than three hours. Bankers said that part of the popularity was because, although there has been a revival in Asian convertible bond issuance in recent weeks, this is a rare example of an investment grade blue chip accessing the markets. The easy availability of stock borrow encouraged hedge fund investors to participate in the deal.

The deal was completed in the name of Billion Express Investments, a wholly owned subsidiary of China Unicom (Hong Kong). One rationale for the deal was that, if the bonds are converted, China Unicom will be able to issue around 900 million shares, which matches the number of shares it bought back and cancelled from SK Telecom last year.

In another equity-linked deal, Franshion Properties, the Hong Kong-listed Chinese real estate developer, raised US$500 million this week in a private placement of perpetual convertible securities. The deal was structured to allow the securities to be treated as equity on the balance sheet, rather than as debt as convertible bonds are usually treated prior to conversion. The deal featured a coupon of 6.8% and a conversion premium of 19.9% over Monday’s close; the securities are convertible into equity from one year after issue; and there is an issuer call after five years at 110% of the principal amount. BOC International, Deutsche Bank, JP Morgan and Standard Chartered led the deal.

Global Logistics Properties

Global Logistics Properties, the industrial property spin-off from the Government of Singapore Investment Corporation sovereign wealth fund, has provided more detail for its forthcoming IPO.

The transaction will involve the sale of 1.76 billion shares at a price range of S$1.78 to S$1.96 per share, which would raise S$3.45 billion at the top of the range. But an overallotment option could bring the total raised to S$3.91 billion, close to the largest IPO ever raised in Singapore.

Roadshows for the IPO began on Tuesday, five days later than originally planned, with pricing to follow in the week of October 10. The delay is significant because it means the deal will now be a head-on competitor to an IPO from Mapletree Industrial Trust, whose roadshows began yesterday and which is expected to price on October 12. This makes for a fascinating stand-off, since each is backed by one of Singapore’s two sovereign wealth funds, with Temasek owning Mapletree. Citi and JP Morgan are global coordinators and joint bookrunners on the GLP deal, with CICC, DBS and UBS joint bookrunners and Nomura lead manager for a Japanese POWL offering. DBS and Goldman Sachs are joint global coordinators and joint bookrunners for the MIT deal, with Standard Chartered and Citi as joint bookrunners – meaning Citi features in both deals (having also completed a S$304.9 million private placement for Mapletree Logistics Trust on September 21).

Other information in the GLP prospectus includes that cornerstone investors will take up 589 million shares and that the POWL offering will involve 170 million shares. It reveals that nine cornerstone investors have pledged to take up one third of the deal: Alibaba Group Treasury, Bosera Asset Management, CB Richard Ellis, Chow Tai Fook, Jovina Investments, ING Clarion Real Estate, Lion Global Investors, Owl Creek Asset Management, Vervain Equity Investment and View Far Management. The latter two are members of the Nan Fung property development group in Hong Kong; Bosera, the Guangzhou fund manager, is acting on behalf of China’s state pension fund, the National Social Security Fund. Interestingly, none will be bound by a lock-up.

The prospectus also states that S$1.5 billion of the funds will be used to support growth in China and Japan, where most of the assets in the IPO are located, S$600 million to pay down shareholder loans and inter-company advances, and S$700 million to redeem preferred equity.

Investor feedback suggests split opinions. On one hand, China logistics facilities are attractive, particularly those that cater for domestic consumption – which the prospectus says accounts for 80% of its warehouses there. On the other, investors are not excited about a deal with some heavy exposure to Japan, where economic growth is negligible. The company and its bankers are trying to pitch China as the source of growth and Japan of stable cashflow, but some feel that the delay in the deal was partly a consequence of investor ambivalence to the model at the price ranges being discussed.

Coal India

Coal India has announced details of its forthcoming IPO, which is likely to be India’s biggest ever. The deal will sell up to 631.7 million shares at a price range that will be announced by October 14, with market discussion in India expecting the top of the range to be around Rp260 per share. That would equate to Rp164.2 billion, or US$3.65 billion.

Books will open on the deal on October 18, closing for qualified institutions (QIBs) on October 20 and for retail investors the following day. Pricing is expected around October 24. Bank of America Merrill Lynch, Citi, Deutsche Bank, Enam Securities, Kotak Mahindra and Morgan Stanley are bookrunning lead managers.

This week Coal India gained approval from the Registrar of Companies for its IPO, one of a host of regulatory steps required before listing in India; that certification is now passed to SEBI, the market regulator. It has been reported in India that a revised prospectus, incorporating 78 changes suggested by SEBI, was filed with the regulator on Tuesday evening.

The deal is expected to sell 10% of the government’s stake in Coal India and is a key part of government plans to raise as much as US$8.5 billion from asset sales by March 2011.

One curious development is that some bankers say there will no longer be a share sale to anchor investors ahead of the opening of the books, which contradicts the originally filed prospectus. It is understood the government has decided against an anchor tranche because it believes there is sufficient interest from other investors, and that the timing – with the need to set a price range, open and close the books, and set allocations within a day before the public offer – appeared prohibitive for a state-owned company that would require several levels of government approvals during the process.

Coal India will be hitting the markets at a time of rare exuberance. Yesterday the BSE Sensex briefly topped the 20,000 point landmark, capping the best monthly performance in 16 months, while 11 IPOs were launched in a single week between September 20 and 24. The rush for new equity is partly small companies seeking high valuations, and partly issuers trying to get out of the way of the Coal India deal. Issuers have included Eros Group (Enam, Kotak Mahinda, Morgan Stanley and RBS), Ramky Infrastructure (Enam, Deutsche) and Orient Green Power (Axis, Goldman Sachs, JM Financial and UBS).

AIA

AIA began marketing its up to US$15 billion IPO this week, confounding skeptics who thought it implausible the listing could be completed this year.

AIA is on the final stretch now of a listing first mooted at the start of the year, then abandoned when Prudential bid to buy the company from parent American International Group, and finally revived after the Prudential bid was withdrawn in June. Now, a preposterous clutch of 11 bookrunners are pre-marketing and were expected to have received initial indications of interest from potential anchor investors by last night.

From here, roadshows and bookbuilding will begin on October 5, with pricing on October 21. In between, a public offer for Hong Kong retail investors will run from October 18 to 21. Trading should begin on October 29.

That scrum of bookrunners – Citi, Deutsche Bank, Goldman Sachs and Morgan Stanley as joint global coordinators and bookrunners, with Bank of America Merrill Lynch, Barclays Capital, Credit Suisse, JP Morgan, UBS, ICBC International and CIMB as bookrunners, plus Nomura and Daiwa on a POWL issue in Japan – will need to convince investors of the merits of a business that has a new CEO and CFO since the deal was last pre-marketed. They will also need to persuade them of AIA’s positioning in the Asian insurance business and its outlook for profit growth. The better news is that many investors had already done considerable research on AIA during the marketing for the original planned IPO earlier in the year; this, and the fact that most of the necessary documentation had already been compiled then, is one of the reasons AIA has been able to return to the market so quickly. For its part, AIG wants a quick sale in order to pay down its government bailout from 2008.

Aside from the participation of anchor investors and the likely price, one other thing that must still be decided in pre-marketing is the proportion of the business to be sold, with observers expecting about half of the company to be floated. Numerous anchor investors have been reported to be interested, including Singapore’s GIC, Qatar Holdings, and several Chinese entities.

The pending arrival of IPOs from AIA, Global Logistics Properties, Coal India and two spin-offs from Malaysia’s Petronas have prompted smaller deals to sprint to the market to get out of the way.

Among numerous examples, Cebu Air has announced a timetable allowing it to price on October 7 with listing on October 25, partly in order to clear the markets before bigger deals hit. This deal, which will be the first IPO in the Philippines this year, is being led by Citi, Deutsche Bank and JP Morgan with ATR-Kim Eng as a domestic lead manager. Its price guidance of Ps110 to Ps135 for an offer of 186.6 million shares suggests a maximum raising of Ps25.2 billion (US$572 million), although with an over-allotment option it could be potentially raise Ps29 billion.

BRIEFS

Xinjiang Goldwind Science & Technology has announced a pricing range of HK$15.98 to HK$17.98 per share for its issue of 395.3 million new shares, making a potential capital raising of HK$7.1 billion. The Shenzhen-based wind turbine maker was reported to have been covered in its first day of bookbuilding, helped by cornerstone commitments from IFC, Chow Tai Fook (Cheng Yu-tung’s investment company), Shanghai Industrial Financial Holdings, VantagePoint Venture Partners and insurer PICC. Pricing on the deal, led by CICC, Citi, Goldman Sachs, Haitong Securities and JP Morgan, is due on October 2 with trading on October 8.

SITC International Holdings, the Chinese container shipping and logistics company, has raised HK$3.12 billion (US$400 million) in an IPO after pricing at the bottom of a HK$3.12-4.08 range. Citi and CICC led the deal, with shares due to start trading on October 6.

Chinese property developer Sunac China raised HK$2.61 billion (US$336 million) on Thursday after pricing its Hong Kong IPO at HK$3.48, the middle of a HK$3.18-3.98 range. This marked the second attempt by Sunac to complete a float after postponing a previous attempt in December. Bookrunners Deutsche Bank and Goldman Sachs lead managed the deal, which represented a discount of around 50% to the company’s estimated net asset value.