Euroweek Equity capital markets roundup, September 10

Euroweek Equity Capital Markets roundup – September 10 2010

CHINA MOBILE

Vodafone sold its entire stake in China Mobile for HK$50.9 billion (US$6.5 billion) in the early hours of Wednesday morning in the largest ever overnight equity offering from Asia. The only question was: why?

Not why sell the shares – Vodafone has a clearly stated intention to divest non-essential minority holdings, and its 3.2% stake in China Mobile was long expected to fit the bill. Vodafone’s lock-up period had only recently ended.

Instead, the market was puzzled about the exact timing of the deal. It is understood that the deal was not launched until midnight Hong Kong time, when it was almost impossible to reach the Asia-based investors who were expected to underpin the trade (and not easy to reach many Europeans, either). Consequently, almost the entire deal was sold in just two hours before the Hong Kong opening at 9.30 a.m. Additionally, some thought it a curious day to launch as both Asian and European markets had fallen during the day.

This didn’t stop the deal being a great success for the seller. Although the deal priced at the bottom of a HK$79.20-80 per share range, that equated to a discount of just 3.4% to the stock’s HK$82 previous close, considered very tight for such a large deal. Additionally, it is understood that the odd timing of the deal did not stop it reaching the Asian distribution it needed: one source says that more than 60% of the deal went to Asia, and a further 20% to the US. (Europe was believed to be the smallest constituent in the book, perhaps reflecting the fact it was barely sold at all during European business hours.) Nevertheless, the market was rife yesterday with discussion that at least some of the deal remained on the books of the joint bookrunners, Goldman Sachs, Morgan Stanley and UBS.

“I’m not sure what to make of it,” said one banker. “Vodafone got a very good deal. Investors certainly didn’t and I’m beginning to believe the investment banks didn’t either.” Long-only funds are said to have been major buyers, attracted by China Mobile’s unusually high dividend for a Chinese blue-chip.

China Mobile is the latest and biggest in a series of block trades that has characterised the Hong Kong summer. One week earlier, TPG sold down $1.2 billion worth of Ping An shares, at an even tighter discount of 1.2%. Other recent secondary deals have come from Xingda International, PCCW, Ruinian (sold by Singapore’s GIC), Intime, Hengdeli and (in combination with a convertible) Chaoda Modern Agriculture.

GLOBAL LOGISTICS PROPERTIES

The listing of Global Logistics Properties by the Government of Singapore Investment Corporation (GIC) sovereign wealth fund is underway, aiming to raise up to US$3 billion.

Investor education began yesterday in Hong Kong for a deal that could become the largest ever IPO in Singapore. Pre-marketing continues in Singapore next Wednesday, then in London or New York on September 20^th before the formal start of the roadshow and bookbuild on September 23. The bookbuild will end on October 7 with pricing the following day; the Singapore public offer will then start, followed by a public offer without listing (POWL) subscription in Japan on October 12. Listing and trading should take place on October 15.

Interest in the issue is likely to be intense. Firstly, the seller is one of Singapore’s two sovereign wealth funds, which always guarantees local interest; additionally, GIC’s real estate arm is in its own right one of the largest real estate investment groups in the world. The Global Logistics Properties business is one of the biggest holders of modern logistic facilities in Asia; chiefly it is made up of assets in China and Japan purchased from ProLogis. It is understood the funds will be used to support growth plans in those markets, as well as paying down shareholder loans, intercompany advances and preferred equity.

It is not yet clear how many shares will be offered, nor the pricing range, but one source says 95% of the offer will be a global placement tranche and just 5% a Singapore public offer (with the POWL tranche in Japan presumably being considered part of the global placement). To become Singapore’s biggest ever IPO, it will need to exceed the S$4 billion Singapore Telecommunications listing from 1993, equivalent to US$2.9 billion. Three institutions, all existing shareholders, are understood to be subject to lock-ups in the deal: Reco Entities, Schwartz-Mei Group and GLP Association Benefits.

Citigroup and JP Morgan are global coordinators; they also share bookrunner duties with DBS, UBS and CICC. Nomura will manage the separate POWL offering in Japan.

The GLP listing is illustrative of a glut of high-profile, mainly high-quality businesses approaching IPO in Asia. The two Petronas subsidiaries, Petronas Chemicals and Malaysia Marine and Heavy Engineering, are discussed in a separate story; the listing of the AIA insurance business could raise as much as $15 billion in Hong Kong; Mapletree Investments, owned by Singapore’s other sovereign fund, Temasek, is planning a listing of its industrial properties; Garuda, Krakatau Steel and Indofood Sukses Makmur have listings underway in Indonesia; and Coal India was expected to complete investor education yesterday ahead of its listing there.

 PETRONAS

The listing of two subsidiaries of Malaysia’s iconic bluechip, Petronas, moved a step closer this week when the preliminary prospectus was filed for the IPO of Petronas Chemicals.

A filing for another subsidiary, Malaysia Marine and Heavy Engineering, was made in a 10-page announcement on July 23. Between them, they will bring the number of listed businesses within the sprawling Petronas energy group from four to six.

The preliminary prospectus for the Petronas Chemicals IPO does not state the size of the offering nor the likely timing, but it is expected to raise more than US$2 billion before the end of the year. It is likely that pre-marketing will take place in October. CIMB, Deutsche Bank and Morgan Stanley are joint global coordinators and bookrunners, but CIMB is given pride of place on the prospectus as principal advisor, managing underwriter and retail underwriter.

The prospectus suggests the offer will combine cornerstone investors, a separate institutional offer (which will include foreign investors) and a retail offer, but it does not indicate the likely division between the three approaches. It also does not state what proportion of the company will be listed, although those close to the deal expect the parent to maintain a majority stake.

In the absence of that information, it is chiefly interesting for what it shows about the restructuring of the business itself. It says that 22 separate companies have been merged to form the group with combined revenues of RM12.2 billion in the year to March 31 2010, with net profits of RM2.6 billion and net assets of RMB26.9 billion. It is the largest producer of methanol in southeast Asia and the fourth largest in the world.

The other listing, Malaysia Marine, is expected in the fourth quarter and will likely raise between $400 million and $600 million. JP Morgan, Credit Suisse and Maybank will lead that deal, on which one cornerstone investor, the French oilfield services group Technip, is already confirmed.

In aggregate the deals have considerable resonance in Malaysia beyond their size. Petronas is by some distance considered Malaysia’s key corporate national champion; it is also a vital source of money to the state, contributing about 45% of government revenues. It is, as one banker puts it, “the unofficial banker to the government”, and an indication of its status locally is that the country’s tallest buildings, the record-breaking Petronas Towers, bear its name (it and its subsidiaries and associates occupy an entire tower).

These are not the first listings of subsidiaries. Petronas Dagangan, the domestic marketing arm, and Petronas Gas, in charge of gas transmission and processing, were listed in the mid-90s, and were followed by KLCC Property Holdings, which includes the Petronas Towers, and MISC Berhad, which holds shipping interests including the assets that will be listed as Malaysia Marine. Since those entities have a more than US$5 billion market capitalization, the new listings will not transform the markets.

They are, however, seen as being a key part of prime minister Najib Razak’s financial reforms, which include encouraging more big companies to list (and existing companies to sell more stock) in order to deepen the Malaysian financial markets, which have gradually fallen behind regional peers in terms of their contribution to regional market capitalization. Some see the listings as a step towards a potential listing of the whole Petronas empire, which really would be a transformative event for Malaysian markets.

Additionally, since Petronas evidently does not need the money, the listings are seen as a form of social duty: enabling ordinary Malays to participate in the story of one of their national figureheads, probably the only world-class international business in the country.

WIND/SOLAR

Chinese alternative energy businesses are seeking new capital this week, with solar power group Trony Solar preparing a Hong Kong IPO as wind farm manufacturer China Ming Yang Wind Power Group files for an American Depositary Share issue.

Trony Solar will hit the markets first, in its second attempt to secure a listing. The Shenzhen company had planned a New York Stock Exchange issue last December, then postponed and eventually abandoned it. Instead, it now seeks to raise around US$200 million in a Hong Kong listing.

Pre-marketing is underway and a roadshow is expected to follow on September 20, visiting the US, Europe and Asia, with pricing on September 30.

The decision to shift venue has attracted much pondering in the market. “It’s a funny thing,” says one banker. “Often Asian companies look to the US because they have scarcity value there. In this case it’s the opposite: there are too many solar companies listed.” In Hong Kong, by contrast, there is only one other solar power group listed – Solargiga – so the target will instead be to seek Hong Kong retail or domestically-focused institutional money that does not generally have exposure to this sort of company in the region. Trony’s particular expertise is in photovoltaic modules for solar power generation. Specifically, it uses a technology called thin film, and is the only such manufacturer in China.

CLSA, JP Morgan and ICBC International are joint bookrunners on the deal, which will sell a 25.7% stake in the company, with a sale of 90% primary and 10% secondary shares and a 15% greenshoe. 10% of the offer is reserved for retail. JP Morgan had also been a lead manager on the planned US offer, in that instance alongside Credit Suisse.

On September 7, China Ming Yang Wind Power Group filed a draft prospectus seeking to raise US$400 million from an American Depositary Share issue in New York. China Ming Yang is a wind turbine manufacturer – the fifth biggest in the country, but the largest private company, with no state ownership. It designs, manufactures, sells and services megawatt-class wind turbines. While fifth in China may not sound much, China now ranks first in the world in terms of newly installed wind turbine capacity, with 13,750 megawatts in 2009 alone. It turned profitable in the first quarter of 2010 after incurring losses in 2007, 2008 and 2009.

Bank of America Merrill Lynch, Credit Suisse and Morgan Stanley are lead managers on this deal, which does not yet have a price range; if investor reception to the initial filing proves positive, then the process of formal launch will begin in about a week’s time. It is understood that initial response from investors has been strong.

A third alternative energy company, Xinjiang Goldwind, may also be seeking new equity – and, like Trony, it will be the second attempt if it does so. The company, which makes and distributes wind turbine generator sets, abandoned a Hong Kong IPO in May but has been reported to be planning to revisit it. Goldwind’s original deal had sought to raise between HK$7.82 billion and HK$9.09 billion, equating to US$1-1.2 billion; CICC, Citi and Credit Suisse were the lead managers. It is not clear whether the company would seek to raise a similar amount in a revised IPO, or whether it would use the same lead managers.

 TAIWAN

A promising debut for Chinese shipbuilder Yangzijiang Shipbuilding Holdings in a landmark capital raising in Taiwan may pave the way for more mainland enterprises to list there.

Yangzijiang is one of China’s largest shipbuilders, and this week became the first mainland company to list its equity in Taiwan. It did so through a Taiwan Depositary Receipt issue that raised NT$4.5 billion from the issue of 240 million securities. Yangzijiang is formally registered and listed in Singapore, which is why it was permitted to list in Taiwan, but its main assets are in China.

The deal is seen as symbolic of closer relations between Taiwan and China, which are expected to have major implications for the financial services industry in Taiwan in particular. It is also promising news for the fledgling TDR market. “The idea is to bring Taiwan to the world as a funding hub,” says one Taipei banker. “There will be many overseas listed companies who will want to do a secondary listing through a TDR because if Taiwanese investors can buy international stocks at home denominated in NT dollars they are likely to pay a huge liquidity premium.” A TDR behaves much like an American depositary receipt in that each receipt represents a certain number of shares listed somewhere else. Their launch is also intended to have a second benefit: bringing Taiwanese companies that have listed overseas back home.

“The Taiwan market is the best option for small and mid cap companies,” the banker adds. “The Hong Kong GEM market is going nowhere, and the main board is perfect for state enterprises but not for small or mid caps.” This banker expects red chips (Hong Kong companies whose business is chiefly Chinese) and H-shares (Chinese companies with a listing in Hong Kong) to follow Yangzijiang’s example and launch TDR programs of their own.

The performance of the deal supports the view about premium: within half an hour of the opening the Yangzijiang issue was up 7% from its NT$18.80 offering price, which was itself near the top of the indicated price range. It also appears to have driven up the Singapore share price, which rose 6% during the sales process, and continued to rise after pricing. However, it is not true to say that the initial pricing of the deal was a major premium to the underlying – it was actually a modest discount. Most TDRs, however, have moved to a significant premium over the underlying shares, many of more than 20%, and Yangzijiang appears on track to do the same: by late Thursday it had moved to a premium of almost 7.5% to the underlying.

The pricing did not stop the deal being more than three times oversubscribed by a combination of institutional and retail investors, including “significant” overseas institutional interest, according to someone close to the deal.

Sinopac Securities was the sole bookrunner on the deal, and Grand Cathay, KGI Securities and Polaris Securities were co-leads.

Another depositary receipt issue involving Taiwan was completed last week, but in the opposite direction – a GDR sale by Sino-American Silicon Products, which manufactures materials for solar cells. As expected in last week’s Euroweek, the deal was upsized from 48 million to 61 million GDRs, raising a total of $177.2 million, pricing at a 10% discount to the three day volume-weighted average price. Nomura was sole lead manager on the deal.

 BRIEFS

Thai Airways is on the road ahead of a BT15 billion (US$482 million) global follow-on offering. The roadshow visited Hong Kong and Singapore this week and was heading to London at the time of writing, with New York to be the final destination ahead of pricing on September 14 (New York time). The selldown will involve one billion new shares but will leave the Thai government as the majority holder in the company. Finansa, Morgan Stanley and Phatra are lead managing the deal.

Country Style Cooking Restaurant Co, a fast food chain of restaurants in China, has filed for an A$100 million American Depositary Share issue on the New York Stock Exchange. Bank of America Merrill Lynch and Credit Suisse will be the joint bookrunners.

Pre-marketing is underway for the Hong Kong IPO of Mongolian Mining Corporation, to raise between US$800 million and US$1 billion. The coking coal producer has not yet confirmed a date for roadshow or listing. The lead managers are JP Morgan and Citi.