The share sale, which accounted for 27.6% of the existing share capital and 21.7% of the enlarged company, was completed at a 10% discount to WednesdayÆs close after being offered in a range between 8.1% and 12.4%. The discount is fairly generous compared with other Hong Kong placements, but the relative size of the transaction, the ongoing M&A story and the fact that China Mining is quite a volatile stock, may have justified the added incentive.
Demand was strong and the book ended up 2.5 times covered even though the deal was upsized by 15% after the first few hours of bookbuilding.
Having initially planned to sell 1.135 million new shares, China Mining ended up offering 1.305 million at a price between HK$1.83 to HK$1.92. The deal was priced just above the mid-point at HK$1.88 after attracting about 70 investors. The majority of the demand came from Asian accounts, although sources say a few European-based mining specialists, which have participated in some of the recent mining deals out of China, also submitted orders.
The Morgan Stanley-led offering was open to onshore US investors, but because of the timing of the sale û it launched in the Hong Kong morning and closed at about 3.30pm û only a few institutions with night desks were able to participate. There was additional US demand from global funds with offices in Asia, however.
The deal comes at a time when metals and mining stocks as well as materials in general are generating a lot of interest among global investors.
China Mining moved into this sector as recently as November 2006 when it bought an existing mining operation which focuses on exploration and exploitation of natural rutile as well as processing and trading of rutile- and titanium-related products. At that point, the company had already discontinued most of its earlier businesses, including investment trading, trading of pharmaceutical ingredients and chemicals and property investment. Only the umbilical cord blood storage business remains among its previous activities.
The announced acquisition of a 75% stake in Harbin Songjiang û a producer of molybdenum, copper and zinc with two active mines û will strengthen its new business further. Once completed, the purchase will increase the companyÆs net assets by 137% to HK$4.57 billion ($585 million), according to a circular outlining the acquisition.
Harbin Songjiang also holds seven exploration licences, but China Mining has said that it has currently no intention to carry out any exploration activities under these licences, as it wants to focus on the mining operations of Songjiang Copper Mine and Wudaoling Molybdenum Mine.
Investors have already shown that they like the companyÆs change of business focus as the share price has gained 47% year to date, including a 5.09% jump on Wednesday to HK$2.09. The stock was suspended yesterday to complete the placement. This compares with a 9% gain in the Hang Seng Index.
Investors have also had plenty of time to do the necessary research and to decide whether or not to invest in this placement and as it was flagged already on May 25 when the company issued details of the Rmb1.8 billion acquisition of Harbin Songjiang. China Mining received shareholders approval for both the share issue and the acquisition on June 8.
An added appeal for investors, observers say, is the fact that the stock is very liquid since it is held by a broad group of investors. The chairman, who is the single largest shareholder, owns just under 11%.
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