BNP Paribas Peregrine and CLSA completed a HK$187 million ($24 million) placement of shares of Convenience Retail Asia (CRA), late Wednesday. The deal sees Li & Fung - the Hong Kong trading group - sell almost 14% of the existing share capital of Convenience Retail Asia, taking its stake down from 70% to 56% and increasing the public float from 26% to 40%.
The deal comes just over two years after CRA was listed on Hong Kong's second board, the Growth Enterprise Market (GEM). Li& Fung management have been saying for some time that they wanted to sell down their stake but due to the listing requirements of the GEM, they had to endure a two year lock up.
The deal was priced at HK$2 a share, a 4.7% discount to the closing price on Wednesday. Bankers close to the deal say that this is a relatively tight discount given that most recent placements have been discounted by about 6%-8% in order for them to sell. On such placement was the recent Dah Sing Bank secondary offering, which was discounted by 7%.
In the end the CRA deal was sold to 38 separate institutional investors and some high net worth individuals. Of the institutions, 25% were said to be existing shareholders who were looking to increase their holdings. The remaining three quarters of the institutional book were accounts new to the stock. The deal offered the two lead managers fees of 2% and the economics were split 50/50.
CRA runs convenience stores in southern China and it has been a good performing stock since its IPO in January 2001. The shares almost tripled in value in the first six months from an IPO price of HK1.10 a share before calming down to around the present HK$2 level.
CRA has no real need to raise more finance given that it is funding its expansion purely from cash flows. Therefore, many investors felt that this was perhaps the last time for a while they would have the chance to invest in size and at a discount to the market. "This company has a simple story," says a banker close to the transaction. "You get Li & Fung management, you get China and you get retail. If you believe in that combination, then this is a stock that could make you a lot of money over the years."
The primary motivation for Li & Fung to do the deal was so that there would be a bigger public float of the shares on offer. The proceeds of the sale will flow directly into Li & Fung accounts.
