CNBM follow-on raises $493 million

China National Building Materials (CNBM) on Tuesday raised new capital from a HK$3.82 billion ($493 million) follow-on offering that it will use to reduce leverage. The deal included an 8.6% portion of shares that were sold by the National Social Security Fund (NSSF), meaning CNBM, a producer of cement and other building materials, pocketed about $450 million.

CNBM’s share price has had a strong run since early May, rising 63%, and that demand was evident in the placement as well. The deal was covered in just 45 minutes and, when the books closed after less than two hours, it had received orders for about three times the shares on offer. According to a source, there had been reverse inquiries for stock from a number of investors since the company’s first half earnings in late August – which showed a 25.7% rise in net profit – and the allocation was skewed towards these investors and long-only funds that came in with large orders. The buyers also included global asset managers, sovereign wealth funds and global hedge funds, with most of the demand coming from Asia or Asia-based global accounts, followed by Europe and the US. In all, there were more than 80 orders in the book.

The deal comprised 238.9 million H-shares, including the 20.6 million secondary shares sold by the NSSF, or 19.9% of the existing H-share capital. They were offered in a range between HK$15.85 and HK$16.65, which represented a discount of 2.7% to 7.4% versus Tuesday’s closing price of HK$17.12.

With the share price having gained 5.3% to a 2010 high earlier in the day, investors would have been keen to get as wide a discount as possible. The placement also accounted for a bulky 14 days of trading volume. However, the strong demand enabled the price to be fixed slightly above the low end at HK$16, resulting in a 6.5% discount versus the close, or 5.4% versus the day’s volume weighted average price.

The stock held up well in the wake of the deal yesterday, likely deriving some support from the skewed allocations. It never fell as far as the placement price and closed at HK$16.18, down 5.5% on the day.