Axis Bank’s share price jumped 4.3% yesterday after the Indian bank’s qualified institutional placement (QIP) was significantly oversubscribed and sent investors scrambling for the stock in the secondary market.
The deal was completed in the early hours of yesterday morning Hong Kong time and raised Rs47.26 billion ($877 million), which makes it largest equity deal out of India so far this year. The fact that the deal made money for investors would also be a welcome development after the disappointing performance of Bharti Infratel since its IPO in December.
In connection with the placement, Axis Bank will sell an additional $152 million worth of shares to state-owned Life Insurance Corp of India (LIC), which already owns an 8.9% stake in the bank and counts as one of its promoters.
Promoters aren’t allowed to participate in QIPs, so its investment was broken out and completed as a preferential offering. LIC paid the same price as the investors buying into the QIP, however. The two deals combined will result in $1.03 billion of equity capital that Axis Bank will use to shore up its tier-1 capital.
Meanwhile in Singapore, Ascott Residence Trust also held up well after raising S$150 million ($121 million) from a follow-on sale of new units. Like the Axis Bank trade, this deal too was launched after the market closed on Monday and priced in the early hours of yesterday morning Hong Kong time.
The real estate investment trust, which is widely referred to as Ascott Reit, fell 3.2% to S$1.3750 yesterday, but closed well above the placement price which was fixed at the bottom of the indicated range for a 4.8% discount to Monday’s dividend-adjusted close.
Axis Bank and Ascott Reit were in the market at the same time as a $1 billion sell-down in Industrial and Commercial Bank of China (ICBC) by Goldman Sachs, a $133 million CB by China Precious Metal Resources and a few smaller deals, making Monday one of the busiest evenings in the Asian equity capital markets so far this year.
The current rush is driven partly by the fact that issuers and existing shareholders want to get their deals done before the Chinese New Year holidays in the second week of February, partly because earnings-related blackouts are starting to kick in. Vendors are also keen to take advantage of the current investor appetite for equities.
And if stocks continue to trade well after the deals, then investors are likely to come back for more. Like Axis Bank and Ascott, ICBC also closed above the placement price yesterday after falling 2.2% during the session. Goldman Sachs sold shares at a 3% discount to Monday’s close.
Axis Bank
The Axis Bank QIP was well flagged and there were quite a lot of short positions in the stock leading up to it. Even so, the bookrunners had lined up three anchor investors who were interested in taking the entire deal.
Together, this helped create good momentum early on and when the order books closed at about midnight Hong Kong time (an hour later for investors based on the US west coast), the deal was said to be more than three times covered.
According to a source, about 70% of the demand came from long-only investors and domestic accounts, while about 30% came from hedge funds.
However, the Axis Bank management got involved in the allocation process and decided to zero all the hedge fund orders. At the same time, the oversubscription meant that most long-only investors got scaled back by about 50%. Together, this meant that most investors didn’t get as many shares as they had hoped for, which explains the active buying in the secondary market yesterday.
Domestic investors contributed about $500 million worth of orders, or close to 20% of the total demand, one source said.
As reported yesterday, Axis Bank offered 34 million new shares at a fixed price of Rs1,390 per share, which translated into a 1.8% discount to Monday’s close of Rs1,415.05 on the Bombay Stock Exchange. The deal size was equal to 8% of the existing share capital.
Including the 5.9 million shares that will be bought by LIC, Axis will issue a total of 39.9 million shares in connection with this deal, which is slightly less than the 45.8 million shares that it got approval for late last year. However, a source said the company had only ever intended to raise about $1 billion and when the share price gained in the interim period, there was no need to sell the maximum number of shares.
Including yesterday’s gain, Axis Bank’s share price has risen 58.6% from its 2012 low in early September and is up 44% in the past 12 months.
Axis Capital, Citi and J.P. Morgan were joint bookrunners for the transaction.
Ascott Residence Trust
Singapore-listed Ascott Reit didn’t attract as much demand as Axis Bank and ended up pricing its follow-on at the bottom of the range at S$1.305 per unit.
The final price translated into a discount of 8.1% versus Monday’s close of S$1.42, or a 4.8% discount after adjusting for a dividend payment of 4.85 Singapore cents per unit that will be paid to the pre-placement unitholders.
Based on Monday’s dividend-adjusted volume-weighted average price (VWAP) of S$1.3685, the discount narrowed to 4.6%.
As reported yesterday, Ascott was offering 114.943 million units at a price between S$1.305 and S$1.335 each, which translated into a discount of 2.7% to 4.8% versus Monday’s dividend-adjusted close.
The offering size accounted for 9.1% of the enlarged share capital.
According to a source, the deal was well supported by existing unitholders, which accounted for about half of the demand, as well as a bunch of real estate funds. The order book was split fairly evenly between long-only accounts and hedge funds. In all, about 30 investors came into the deal, which closed just after midnight Hong Kong time.
Most of the demand came from Asia, but with some small participation from Europe and the US.
The deal came as Ascott Reit was trading at a 52-week high of S$1.42 after gaining 43% in the past 12 months.
The trust, which has a portfolio of serviced residences and rental housing properties across Asia-Pacific and Europe, will use the proceeds to fund potential future acquisitions, finance asset enhancement initiatives, repay existing debt and for general working capital, according to the term sheet.
Depending on how much of the proceeds go towards debt repayments, Ascott Reit’s aggregate leverage will fall to between 34.9% and 38.1% from 40.1% at present.
“This equity placement will allow us to increase our financial capacity to fund potential future acquisitions. This will in turn enable us to further grow and enhance Ascott Reit’s portfolio to boost unitholders’ returns,” Ronald Tay, the CEO of Ascott Reit’s management company said in a press release.
The deal will also increase the free-float to about 55.2% from 50.6%, which should help boost the liquidity of the units and increase its profile among global investors.
Ascott Reit’s asset size has more than tripled to about S$2.8 billion since it listed in 2006. And once its latest acquisition of the Cairnhill serviced residence in Singapore is completed the portfolio will expand to S$3.2 billion. It will then own 68 properties with 7,427 units across 12 countries in Asia-Pacific and Europe. Its serviced residences are operated under the Ascott, Citadines and Somerset brands.
The Reit is managed by Ascott Residence Trust Management, which is a wholly-owned subsidiary of The Ascott, which in turn is wholly-owned by CapitaLand, one of Asia’s largest real estate companies.
DBS and Standard Chartered were joint bookrunners for the transaction.
