China Everbright International (CEI), a Hong Kong-listed water treatment and clean energy company, on Tuesday night raised HK$3.66 billion ($472 million) from a top-up placement that attracted strong demand from long-only funds in particular.
The deal priced 24 hours after Korea’s Doosan Infracore raised $400 million from the sale of global depositary receipts (GDRs), indicating that investors are still happy to add to their portfolios even though year-end is just three weeks away.
That should be good news for the number of initial public offerings that have hit the market this week with the aim of listing before the New Year.
Investors are not buying everything though. Late Sunday, Italy-based M&G Chemicals, which had been seeking to raise between $501 million and $591 million from a Hong Kong listing, said in an announcement that it will not proceed with the offering.
The decision had been made “in light of volatile market conditions”, it said, which was widely assumed to mean that it hadn’t received sufficient demand. The company, which produces polyethylene terephthalate (PET) for use in plastic drinks bottles and other food and beverage packaging items, closed the order books last Friday and had been due to fix the price over the weekend.
Market watchers had argued that the IPO would be a tough sell since M&G doesn’t currently have any operations in China and therefore there is no obvious reason for local investors to buy into the Italian company. M&G was aiming to use half of the proceeds towards the construction of a production plant in China, however. The plant would produce a material known as MEG that is used in the making of PET.
The deal was arranged by Citic Securities International and was only the second Hong Kong IPO to be led by the Chinese securities firm on a sole basis.
China Everbright International
CEI is involved in a range of green environmental protection and alternative energy businesses in China, including waste-to-energy, methane-to-energy, straw cogeneration, biomass power generation and solar power. However, its core business is water treatment.
Its share price has rallied 132% this year as government policies remain favourable for the sector and given that CEI is the industry leader, investors have been keen to get exposure. The company was raising capital to fund existing and new projects in the pipeline
It suspended the stock about half an hour into the afternoon session and launched the deal shortly afterwards. It offered 430 million shares, or 10.6% of the existing share capital, at a price between HK$8.46 and HK$8.72.
The price range translated into a 4.0% to 6.8% discount versus the latest market price of HK$9.08, which was up 1.9% from Monday and the highest closing price ever for CEI.
According to a source, there were three very large anchor orders that covered the entire transaction at launch but other investors piled in during the bookbuilding. When the deal closed in the early evening Hong Kong time, more than 100 accounts had submitted orders and the deal was multiple times covered.
There seems to have been some price sensitivity, however, as the final price was fixed towards the low end of the range, at HK$8.52, for a discount of 6.2%.
About 90% of the demand came from long-only investors, including existing shareholders, dedicated clean energy funds, global funds and China-focused funds, the source said.
Investors may have been willing to overlook the fact that the deal came on the back of record high, because it represented a rare liquidity event in the stock. The company raised $162 million from another top-up placement in August last year, but since then there has been no other opportunity to buy the shares in bulk without risking to push the share price lower.
CEI has a daily turnover of about $12 million, based on the activity in the past month, so this deal represents approximately 39 days of trading.
The top-up placement was facilitated by controlling shareholder Guildford, which first sold existing shares through the placement and the bought the same number of new shares at the same price from CEI to ensure all the proceeds ends up with the company. To show that they have no plan to sell more shares in the near-term, Guildford and CEI have both agreed to a 180-day lock-up.
Morgan Stanley was a senior bookrunner for the transaction, while China Everbright Securities was a co-bookrunner.
Doosan Infracore
The Korean manufacturer of construction machinery launched a management roadshow on November 25 and was planning to take orders for a GDR sale of up to $400 million during a 24-hour bookbuilding period early last week.
However, the company was forced to re-file due to what one banker referred to as “technical reasons”, which delayed the deal by a week. When it was finally able to launch on Monday it chose to do the deal as an accelerated bookbuild rather than to keep the books open for 24 hours. Together with a slightly accelerated settlement period, that means the GDRs will become fungible with Doosan’s Korea-listed common shares just before the Christmas week – any later and investors may have started to pass on the deal, one source said.
Doosan launched the deal after the market closed on Monday, aiming to raise the full $400 million. It offered the GDR’s at a price equivalent to W10,850 to W11,450 per common share, or a discount of 3.0% to 8.1% versus Monday’s close of W11,800.
Technically, the GDRs had to be priced at a maximum 10% discount to the volume-weighted average price for the three-day period ending two days before the transaction, namely December 3 to 5. So, the price range was actually set to match to match those criteria, with the discount versus the December 3 to 5 VWAP ranging from 4.9% to 9.9%.
According to a second source, there were enough long-only anchor orders to cover the entire deal, and while the bookrunners did get some incremental demand they didn’t get a lot.
As a result, the price was fixed at the bottom, at the equivalent of W10.850 and an 8.1% discount. The actual GDR price was set at $10.31. Each GDR is equal to one common share.
Based on the final price, Doosan sold approximately 38.80 million GDRs, which accounted for 23% of the existing share capital.
The final order book comprised a mix of long-only investors and hedge funds and about 40 accounts participated in the transaction, the sources said. The fact that the interest was pretty muted can be partly explained by the fact that Korean domestic investors, which normally play a big part in Korean deals, are not able to buy GDRs. However, most of the GDRs are expected to be converted into common shares straight away and some of those shares will no doubt find their way into Korean hands.
The GDRs will start trading on December 20, making it possible for the buyers to request to exchange them for shares.
Doosan’s share price has been on a declining trend since November 29, and by the time the GDRs priced late Monday it had lost 9.9%, suggesting that the company may have suffered a bit of extra dilution by delaying the deal by a week. The stock is also down 30% since the beginning of this year, having given up the bulk of an earlier recovery from a 2013 low of W10.300 in July.
The stock fell a further 3.4% to W11,400 on Tuesday, but held above the issue price throughout the session.
HSBC, JP Morgan, Morgan Stanley and UBS were joint bookrunners for the deal.
