CKI flies under radar with $300 million privately placed perpetual

Cheung Kong Infrastructure (CKI) quietly priced a $300 million perpetual bond on Thursday evening, after a delay of close to a week as the company had earlier faced technical issues surrounding its hybrid listing on the Luxembourg Stock Exchange.

The bonds were priced at par and offered a 7% yield — the same terms it had marketed the deal at the previous Friday. However, CKI chose to issue the shares through a private placement this time, and at a 6.5% discount to last Thursday’s close of HK$43.55 ($5.60) per share. The company is said to have offered a share discount instead of a private banking rebate, which was offered to accounts previously.

CKI, which is controlled by Hong Kong tycoon Li Ka-shing, agreed to issue 56.2 million shares at HK$40.73 per share, with the shares to be held by the fiduciary, The Bank of New York Mellon.

Lead banks Goldman Sachs and J.P. Morgan did the deal so quietly — and without releasing any distribution statistics — that some market participants assumed both banks’ asset management arms bought a lot of the paper.

The company reportedly gathered an order book in excess of $600 million the previous Friday — before it was forced to delay the deal due to questions from Luxembourg’s stock exchange. This time, it tapped only a few investors.

According to analysts, the deal will increase the company’s ability to make acquisitions and reduce its gearing levels, and if all goes well it will be able to sell shares at a higher price in the future to redeem the bonds. CKI can direct the fiduciary to sell the shares it holds at anytime at a price above HK$40.73. The proceeds will be on-lent by the fiduciary to CKI in the form of a senior promissory note to the fiduciary for the same amount.

This arrangement gives CKI the option to sell shares to the market, bit by bit, instead of at one go. “The company wants to increase their free float and they have the option to sell those shares at any time,” said a source. “If they did a big block at one go, they would have to offer a bigger discount. The last time they sold at a 7% discount.”

In July 2011, CKI had sold $438 million worth of shares through a top-up placement that was priced at HK$40.41, or a 7% discount to the previous day’s close of HK$43.45.

If CKI chooses to call back the bonds at par after the second year, it can sell the shares at any price it wants to. Investors also have the option to convert their bonds into shares after five years at HK$40.73.

If CKI starts to sell shares before the second year, the bonds could rally as the likelihood of the company calling the bonds would be high and, in that case, the bonds offer a juicy coupon for a short tenor (assuming CKI calls the bonds at the second year).

Goldman was the sole structuring agent on the transaction.

Away from CKI, Sumitomo Mitsui Banking Corp has mandated Barclays Capital, UBS, Citi, Goldman and SMBC Nikko to arrange a series of fixed income investor calls and meetings in Asia and Europe starting on February 20. The company plans to issue a subordinated dollar bond subject to market conditions.