Despite a mixed day in the Asian stock markets, it turned out to be a busy evening with four block trades fighting for investors’ attention. The most surprising, in terms of timing, was a sell-down in India’s Apollo Hospitals Enterprise, which ignored the fact that the Indian markets were closed for a public holiday yesterday.
The Indian deal will be open to local investors this morning, but the other three raised a combined $562 million and attracted healthy demand — a good sign at a time when some market participants were suggesting that the risk appetite may be starting to wane a bit.
The largest trade was a sell-down in Chinese car manufacturer Geely Automobile by Goldman Sachs Principal Investment Area, which was upsized by 20% to raise HK$2.38 billion ($307 million).
It was followed by a block of shares in Bangkok-listed CP All that was sold by UBS and raised Bt5.68 billion ($185 million).
The third transaction saw private equity firm Bain Capital sell part of its investment in Hong Kong-listed property developer Sunac China Holdings. At HK$540 million ($70 million), it was a lot smaller than the others, but interesting since it was the second sell-down in Sunac by a financial sponsor in less than a week.
Meanwhile, another private equity firm, Apax Partners, was aiming to raise about $130 million by selling part of its stake in Apollo Hospitals.
All four of these stocks are trading at or close to 52-week highs, making this a good time for the sellers to take some profit off the table. However, at least two of the deals were sparked by reverse inquiries from investors looking to get hold of this particular stock. The latter has become a bit of a trend this year and highlights the fact that investors are increasingly seeing block trades as an access product that allows them to take a meaningful position in less liquid names without pushing up the share price and without having to spend weeks buying the shares in open market.
Geely Automobile
One of the trades driven by investors interesting in buying was Goldman’s sell-down in Hong Kong-listed Geely, a manufacturer of sedan cars under three self-owned brands — Gleagle, Emgrand and Englon — which gained international attention in 2010 when its Chinese parent company acquired Volvo Cars from Ford.
Goldman, through its principal investment arm, invested in Geely in 2009 and so far hasn’t made any major disposals in the name. However, a person close to the transaction noted that the Geely management has been doing a lot of investor relations work following its six-month earnings release in August and has been referring investors who wanted to buy its fairly illiquid shares to Goldman. While the stock used to trade about $50 million to $60 million per day, the daily turnover is now closer to $20 million, which is quite thin for a company with a market cap of $3.4 billion.
But the stock has more than doubled this year — as of yesterday’s close it was up about 115% — so there is a decent incentive to sell. And with the share price falling three straight days after hitting a new 52-week high of HK$3.85 last Friday, the investment bank finally decided to accommodate these requests.
Goldman initially offered 600 million shares, but on the back of the strong demand the deal was upsized to 720 million shares, representing a 9.6% stake in the company and about 54% of Goldman’s holdings in the stock.
The shares were offered at a price between HK$3.30 and HK$3.40, which translated into a discount of 5% to 7.8% versus yesterday’s close of HK$3.58. In exchange for being able to upsize the deal, the price was fixed at the bottom of the range for a 7.8% discount, although a source noted that the demand was quite price sensitive overall.
About 90 investors participated in the transaction and even after the size was increased, the deal was about three times covered. As with most deals this day, the block was well-anchored at launch, however. According to the source, more than half of the deal went to long-only funds after the allocations were skewed towards long funds and the investors who had been wall-crossed earlier.
Goldman Sachs PIA will still own about 8.3% of Geely after this transaction, which it holds through convertible bonds and warrants. At the placement price, the stake is valued at around $265 million. It is subject to a three-month lock-up.
Goldman Sachs was the sole bookrunner for the transaction.
CP All
The CP All transaction was a bit different to the other blocks in that UBS isn’t actually an investor in the company. Instead it was selling the shares as a hedge for a financing arrangement it had entered into with the Charoen Pokphand Group. In that sense it was similar to a $353 million sale it did in Charoen Pokphand Foods earlier this month.
CP All, which owns the 7-Eleven franchise in Thailand, is also part of the Charoen Pokphand group. This stock too has had a good run this year and is currently up about 60%.
The deal comprised 146 million shares that were offered at a price between Bt38.90 and Bt39.75, or at a 2.5% to 4.5% discount versus yesterday’s closing price of Bt40.75. The price was fixed at the bottom of the range for the maximum 4.5% discount.
There were no details available last night about the size of the demand or who bought the shares, but earlier indications had suggested that the deal was going well.
UBS was the sole bookrunner.
Sunac
Sunac’s share price has performed well after private equity fund CDH sold about $70 million worth of shares in the company last Thursday. It gained 1.5% the day after the deal and yesterday the stock closed 12% above the placement price.
The CDH block was also several times covered, which meant there was a lot of left-over demand that didn’t get filled on the day. As a result, Goldman Sachs and UBS, who arranged the trade for CDH, were said to have received a number of reverse inquiries from investors this week who wanted to buy more shares.
The obvious potential seller was Bain, which invested in Sunac alongside CDH and a few other names before the company went public in 2010.
The stock is currently trading 39% above the IPO price of HK$3.48. However, the company had a tough time last year and about a year ago the share price hit a low point of HK$1.27. Since then it has been on a pretty steady upward trend, gaining a massive 280% and setting a series of record highs in the past five months. So, it comes as no great surprise that the private equity firms are taking the opportunity to monetise part of their holdings.
The deal comprised 120 million shares, which account for about 4% of the company. The price was fixed at the top of the HK$4.42 to HK$4.50 range for a 7.2% discount to yesterday’s close of HK$4.85.
According to sources, this deal attracted even greater demand than the CDH block last week. Even though the size was well below $100 million and the deal was already covered at launch, the bookrunners received orders from 80 investors.
The order book was said to be well diversified and included long-only accounts, hedge funds, China specialists and even some retail demand.
Bain sold about 40% of its stake in Sunac and will still own about 6% of the company folling this deal, according to a source. Based on the current share price, that stake is valued at about $110 million. CDH owns another 4% of the company, valued at around $70 million. However, the two private equity firms are locked up for the next three months.
Goldman Sachs and UBS were joint bookrunners on this latest sell-down by Bain as well.
Apollo Hospitals
The final trade, which is expected to wrap up before the Indian market opens today, accounted for a 6.1% stake in Apollo Hospitals and will see Apax’s stake fall to about 12.3% from 18.4%. Part of its investment is held through CLSA Mauritius and it was the latter entity that was listed as the seller yesterday.
The deal comprises 8.55 million shares, which are offered at a price between Rs824 and Rs876.60, implying a deal size of between Rs7.05 billion and Rs7.49 billion ($127 million to $135 million.
The top end of the range is equal to yesterday’s closing price on the National Stock Exchange, while the bottom price represents a discount of 6%. The share price has gained about 62% year-to-date.
Citi is the sole bookrunner.
