Euroweek equity roundup, August 27

Euroweek Equity Capital Markets roundup, August 27 2010

PCCW leads placement surge

In another week dominated by secondary raisings and placements, a HK$1.3 billion (US$167 million) issue from Hong Kong telco PCCW was the biggest deal.

The sale, PCCW’s first foray into the equity markets for seven years, followed a $500 million bond the previous week and reflected a wish to increase institutional participation in the group’s shareholder base.

PCCW set out on Monday with plans to place 380 million new shares with an option to upsize by a further 225 million. In the end, the issuer opted for part but not all of the upsize option, adding 120 million for a total 500 million new shares.

Unusually, the transaction involves T+5 settlement, meaning that despite a trade date of Tuesday August 24, closing and settlement does not take place until next Tuesday, August 31. This was a function of PCCW’s parent company legally being a Singapore entity, and had some implications for pricing, since investors tend to prefer a shorter settlement period than this. The leads, HSBC and Morgan Stanley, set out with a HK$2.58 to HK$2.70 price range, representing a 6-10% discount to the closing price on August 23, settling towards the lower end at HK$2.60 for a 9.4% discount.

Despite coming at the low end of guidance, the deal appeared popular, galvanized by some positive results from the company earlier this month and a 53% year-to-date rise in the stock prior to the deal. Those close to the deal say the base offering of 380 million shares was covered within 45 minutes of opening the book at 5pm, and was closed several times oversubscribed at 7.30pm.

So why not take the full upsize option? “Over the years since PCCW last tapped the equity market, the shareholder base had become primarily retail, so the issuer had a goal of increasing institutional ownership,” says someone close to the deal. “And in addition to increasing the institutional base, they wanted to focus primarily on long-only institutions. They were concerned by secondary market performance and wanted to make sure it was tightly allocated.”

In practice, more than 50% of the final allocation went to long-only institutions, and the bulk of the deal, around 70%, to Asia. A total of 50 institutions came into the deal; besides long-only buyers, there was a mix of high net worth and some hedge fund participation.  The top four allocations in the book are understood to have accounted for more than half of the transaction.

In other Hong Kong capital raisings, Singapore’s Government of Singapore Investment Corporation (GIC) sold out of its stake in mainland health-food maker Ruinian (see Singapore story); and Warburg Pincus sold a chunk of its stake in Intime Department Store Group, another Hong Kong-listed mainland Chinese company, in a deal led by RBS.

The Intime deal raised HK$1.03 billion (US$133 million) through a sale of 100 million shares, subsequently upsized to 120 million, representing 6.8% of the company’s stock. From price guidance of HK$8.53 to HK$8.80, the deal priced at HK$8.60, a 7.1% discount to the previous close. Warburg Pincus, which also sold shares in April, now owns about 9.1% of the company’s stock having invested in March 2007 prior to Intime’s listing.

Finally, Chinese luxury watch manufacturer Hengdeli Holdings raised HK$1.04 billion (US$134 million) in a sale of 300 million new shares this week led by Kingston Securities. The deal came at a fixed placement price of HK$3.48 per share, which was a 10.08% discount to the August 24 close.

“We’ve seen a number of placements recently, with mixed success, and we would expect the market to continue to be conducive for block trades and top-up placements from Hong Kong,” says one banker. “It’s interesting that in what is normally the quiet period for markets there is still good activity from these deals.”

SINGAPORE GEARS UP FOR SEPTEMBER

Singapore is set to host some of the largest equity capital market deals in the coming weeks.

This week shareholders in Ascott Residence Trust, one of the many real estate investment trusts (REITs) sourced from the CapitaLand group, received a hefty circular covering, among other things, a proposed new fundraising likely to raise between S$500 million and S$560 million.

The offering will be for 487.5 million new shares, and the circular uses an illustrative issue price of S$1.15 million per share to suggest total proceeds of S$560.6 million. However, the final price will be a discount of not more than 10% to the one-day volume weighted average price prior to the lodging of the offer information statement, which may well be some distance lower: at the time of writing it was trading at S$1.14 per share, which with a 10% discount applied would by closer to S$1.03 per share.

Credit Suisse and DBS are joint lead managers, bookrunners and underwriters, while Credit Suisse is sole financial adviser and sole global coordinator. As well as an issue to existing shareholders, it will include a placement of new units to CapitaLand group. Additionally, The Ascott Limited and Somerset Capital have pledged to take up their allocation in the deal, which is expected to increase the REIT’s free float by 73%.

The issue will help to fund interests in 28 serviced residence properties in Singapore, Vietnam and (mostly) Europe, while at the same time the REIT will divest a serviced residence property in Beijing. All these measures must be voted on at an extraordinary general meeting at Singapore’s Raffles Hotel on September 9 so the capital raising will not take place before that date.

Elsewhere in Singapore, the sovereign wealth fund, Government of Singapore Investment Corporation (GIC), has been active. This week it completed a block sale of its stake in Ruinian, the mainland Chinese health food maker. The sale of the 6.6% stake, representing 68.6 million shares, priced at the bottom of a HK$5.71 to HK$5.89 range to raise HK$391.7 million. The offering was a 5.9% discount to the previous day’s close of HK$6.07.

While the stock fell 8% after the deal, investors who participated in the company’s US$133 million IPO in February have still seen their money doubled. The other anchor buyers in the stock – CK Life Sciences, controlled by Li-Ka Shing; Templeton Asset Management; and Raffles – are also now freed from a six-month lock-up, which is triggering further uncertainty in the stock. While HSBC and CCB International led the IPO, UBS led this block trade, which is understood to have been bought by about 25 investors, including hedge funds and long-only buyers.

A much more significant deal from GIC continues to gather pace. It is moving towards the listing of part of its Global Logistics Properties unit, containing Japanese and Chinese logistic property assets mostly bought from ProLogis in 2008.

GIC has appointed Citigroup and JP Morgan as global coordinators, with DBS, CICC and UBS joining them as joint bookrunners. This week, it added Nomura as lead manager of a public offering without listing (POWL) that will be added in order to reach more Japanese investors, reflecting the representation of Japanese property in the float.

The targeted total valuation is still a subject of some discussion, with estimates ranging from S$2.5 billion to S$4 billion.

Finally, a Singapore-listed but Chinese company raised the most significant convertible issue last week, a RMB885 million (US$130 million) twice-upsized deal for Sound Global, a Chinese waste water treatment company.

The five-year put two deal, which was raised in RMB but will be settled in dollars, came at a coupon of 6%, the high end of a 5-6% range. Conversion is at S$0.924, a 20% premium to the August 19 closing price. Morgan Stanley sole led the deal. It initially set out to raise RMB475 million with a RMB205 million upsize option, but proved so popular a second upsize option was added to the first one, and then exercised in full.

Sound Global will be familiar to investors for its aborted attempt to raise up to HK$1.46 billion in a Hong Kong secondary listing, abandoned in June. Last week, an announcement to the Singapore Exchange suggested its plans to list in Hong Kong were still in place, but may be by way of introduction rather than an issue of new shares.

Briefs:

Five more banks have been appointed to the listing of AIA Group, a potentially US$20 billion float expected to take place in October. Bank of America Merrill Lynch, Credit Suisse, UBS, ICBC International and CCB International have been added as bookrunners to the original group of Goldman Sachs, Morgan Stanley, Citigroup and Deutsche Bank who are global coordinators.

Macarthur Coal is to raise up to A$448 million in an institutional placement in Australia. JP Morgan is underwriter on the deal, which at 38.15 million new shares is equivalent to a 15% expansion in its capital. The issue supports the acquisition of a coking coal project, MDL162, for A$334.35 million. Price guidance on the placement is A$11.25 to 11.75; the stock was at A$11.22 early yesterday afternoon after falling on news of the placement.