BNP Paribas on Monday took advantage of the renewed interest among foreign investors in Korean stocks to sell part of its investment in Shinhan Financial Group. The block trade accounted for just 15.8% of the French bank’s total stake in Shinhan, but allowed it to raise W223.25 billion ($211 million) in a pretty tightly priced deal.
The sell-down, which was arranged by BNP Paribas itself on a sole basis, comes as a number of international banks have been reducing or exiting their financial sector investments in Asia ahead of stricter requirements on the amount of capital that needs to be set aside to cover them.
However, a source at BNP Paribas described the transaction as a portfolio management exercise and said that it was “appropriate” to take some money off the table at this time, given that Shinhan’s share price is currently trading at a more than two-year high. It has gained 10% in the past seven trading days alone and is up 45% since its low point at the end of November last year.
The BNP Paribas management is still bullish on Shinhan, however, and intends to remain invested in the company, the source said. The sell-down also will not have any impact on BNP’s strategic partnership with the Korean firm, which includes an insurance joint venture. Shinhan Financial is the owner of Shinhan Bank, which is Korea’s third largest bank in terms of asset size.
BNP Paribas will still own about 5.35% in Shinhan after the sale, down from 6.35% beforehand, and to demonstrate its commitment to the Korean company it has agreed to a longer-than-usual six-month lock-up.
The seller offered 4.75 million shares at a price between W47,000 and W48,650, which translated into a discount of between zero percent and 3.4% versus Monday’s closing price. The number of shares accounted for 1% of the company and about five days of trading, based on the average daily volume in the past month.
It has become almost a rule that the top-end of the price range on share sales in Korean bluechips is equal to the latest market price, but it is still somewhat rare that the deals are actually priced at a zero discount. And given the strong gains in Shinhan’s share price in the past week, that didn’t seem likely this time either.
Indeed, the price was fixed at a bottom of the range for the maximum 3.4% discount. Considering that last Thursday was the first time the stock closed at W47,000 since February 2012, this was still a good price for the seller though.
According to a source, the deal was well anchored by international long-only investors before launch and that helped attract both hedge funds and domestic accounts. In the end, close to 50 investors submitted orders and the deal was said to have been well-subscribed. About 60% of the shares were allocated to long-only funds and the rest to hedge funds, the source said.
BNP Paribas will remain the second largest shareholder in Shinhan after Korea’s National Pension Service, which owns 8.1%, according to Bloomberg data. No other shareholder owns more than 5%.
Aside from its investments and businesses in Korea, the French bank has also been increasing its presence in China as it tries to boost revenues in Asia to compensate for the weak economy in Europe. In July its insurance arm, BNP Paribas Cardif, agreed to buy ING Group’s 50% stake in a life insurance joint venture with Bank of Beijing and it also has a couple of other JVs – with Bank of Nanjing in retail and commercial banking and with Haitong Securities in asset management. It also has its own China subsidiary focusing on corporate and investment banking and wealth management.
Zhuzhou CSR
Meanwhile, Zhuzhou CSR Times Electric, which makes train-borne electrical systems and other power equipment for China’s railway industry, has raised HK$2.28 billion ($294 million) from a private placement of new H-shares.
The deal was completed over the weekend and was the third private placement by a Hong Kong-listed Chinese company in just one week. As reported earlier, wind power producer Huaneng Renewables raised $204 million over the three-day weekend that ended last Monday and just a day later Beijing Jingneng Clean Energy, a power producer with both gas-fired power plants and wind farms, tapped the market for $119 million through another private sale.
Private placements are typically done without a term sheet and with the bookrunner approaching a select group of investors only as they can only be sold to between six and 10 accounts. They have become popular with Chinese-incorporated companies that have H-shares listed in Hong Kong since the company doesn’t have to issue any shares to the National Social Security Fund (NSSF) in connection with the deal.
If the company does a public placement with broader distribution, it has to issue new shares (or make a cash contribution) corresponding to 10% of the transaction to the NSSF free of charge.
Investors also like them because the aftermarket performance tends to be better with fewer potential sellers after the deal.
The pick-up in the number of such deals right now shows that they are becoming more mainstream, but it is also a reflection of the fact that Chinese companies are keen to take advantage of the strong market environment to raise capital, one banker said.
The first private placement by a Hong Kong-listed H-share company was done in January 2010 on behalf of telecom equipment manufacturer ZTE Corp. Since then there have been 10 more deals, including five so far this year. A sixth company, China Suntien Green Energy Corp, said in August that it plans to sell new shares representing up to 35% of its existing issued H-share capital through a private placement pending approval from shareholders and Chinese regulators.
Earlier this year, China Petroleum & Chemical Corp, commonly referred to as Sinopec, and Sinopharm Group, China’s largest distributor of pharmaceutical products, raised $3.1 billion and $526 million respectively from private placement.
Zhuzhou CSR sold 91.221 million new shares, which accounted for 20% of its existing H-share capital and 8.4% of its total share capital that includes unlisted domestic shares that are mostly held by its controlling shareholder CSR Zelri. Twenty percent is the most it could sell without seeking a special approval from its existing shareholders.
The price was fixed at HK$25, which translated into an 8.8% discount to the closing price of HK$27.40 last Friday. The stock has had a strong run in the past few months amid a more favourable outlook for the Chinese economy and before the deal it had gained 66% since its most recent low-point in early July. However, it was still down 4.5% year-to-date.
According to a source, the deal was placed mostly with existing shareholders, but also attracted at least one new long-only investor. All the buyers were described as institutional investors.
The shares were allocated to the maximum 10 accounts, but the demand was said to have been pretty good and some investors who wanted stock were said to have been turned away.
There was also good support in the after-market on Monday with the stock closing 5.5% lower at HK$25.95 – 3.8% above the placement price.
Zhuzhou CSR said in an announcement that the money raised will be used to pay for raw materials and machinery equipment, as well as for general corporate purposes. The company has already secured the necessary regulatory approvals from both the China Securities Regulatory Commission (CSRC) and the State-owned Assets Supervision and Administrative Commission (Sasac), which owns and manages the government’s stake in China’s state-owned enterprises.
Goldman Sachs was the sole bookrunner for the transaction.
