A block of shares in Ajisen (China) Holdings worth HK$971.6 million ($125 million) changed hands on Friday as Daisy Poon, the founder, chairwoman and CEO, responded to reverse inquiries from investors who wanted access to more stock. The price was fixed close to the bottom of the offering range for a 9.8% discount, but demand was strong and the deal was upsized from about $100 million initially.
Ajisen, a mid-cap operator of high-end, fast-food noodle restaurants in Greater China, has been popular with investors since it listed in Hong Kong in 2007, but with a daily trading volume of only $4 million, larger funds have found it difficult to accumulate meaningful positions in the stock. Consequently, bankers say they have been pitching the idea of a sell-down that would allow investors to buy shares in bulk and would also help to increase the free-float.
And on the back of a 30.5% rally in the stock since the release of full-year earnings on March 23, Poon agreed to reduce her stake for the benefit of other investors. Goldman Sachs was the sole arranger of the trade.
Poon initially offered 53.6 million shares at a 6% to 10% discount versus Friday’s closing price of HK$16.96. Thanks to the reverse inquiries, a significant portion of the deal was said to have been covered at launch, which explains why the bookrunners felt comfortable launching on a Friday evening. And when one large long-only investor submitted a very substantial order during the bookbuild, the bookrunners chose to go back to Poon to see if she would be willing to sell more shares. She was and the deal was increased by 18.5% to 63.5 million shares.
At that size, the deal accounted for 5.9% of the outstanding share capital and reduced Poon’s direct stake in Ajisen to approximately 47.4% from 53.3%. To stress that this was a one-off move to increase the liquidity in the stock, rather than a desire by Poon to reduce her stake, she has agreed to a six-month lockup on her remaining holdings.
The discount range was quite wide compared with other recent placements in Hong Kong, which was likely due to the fact that the deal accounted for more than 30 days’ worth of trading volume. In absolute terms the discount translated into a price range of about HK$15.25 to HK$15.94 and the final price was set at HK$15.30.
According to a source, most of the buyers were global long-only funds.
Ajisen fits in well with the China consumer theme that has been popular with investors since the global financial crisis. And, after dipping below HK$3 in January 2009, the share price has been edging steadily upwards. During the past 12 months it has gained 120%, although there has been a flattening out since the fourth quarter of last year, as the price of agricultural commodities has shot higher, adding to the raw material costs for most food and beverage companies.
Net profits rose by 42% to HK$447.3 million last year, on the back of a 35% increase in revenues to HK$2.68 billion. The gross margin widened to 17.5% from 165% a year earlier even as the company continued to aggressively grow its restaurant network. Last year it added 110 restaurants and 16 new Chinese cities to its network and it now has 508 fast-food restaurants across China and Hong Kong — up from just 122 when it went public in March 2007. The restaurants are operated through an exclusive franchise in Greater China granted by Japanese noodle producer Shigemitsu Sangyo.
