One of the biggest cornerstone investors in Dalian Wanda Commercial Properties' initial public offering divested its entire stake after the market close on Tuesday netting HK$2.86 billion ($369 million).
While the seller remained undisclosed during the marketing process, investors could easily work out that it was one of the three largest IPO investors based on the original term sheet and the stock's subsequent share price appreciation.
The Kuwait Investment Authority and China Life both subscribed to $300 million of the IPO for China's biggest commercial property company, with Ping An Asset Management on $299 million. Together the three have recorded a gain of roughly 23% on their holdings since the stock was listed at HK$48 per share in late December.
In total, a 12 strong group of cornerstones subscribed to $2.094 billion of the flotation, which raised $4.025 billion after the partial exercise of the greenshoe.
The expiry of the cornerstones' lock-up last week coincided with a huge spike in the company's short selling ratio as hedge funds positioned themselves for a potential flood of paper coming onto the market. A number of these investors are believed to have participated in the placement to cover their short positions.
A source close to the deal reported demand from 40 accounts, with one large anchor order from a hedge fund totalling $200 million.
The top five investors were allocated 75% of the 48.33 million shares on offer. About 75% of the paper went into Asia, with a couple of orders filled for accounts in both Europe and the US.
Unsurprisingly there was heavy participation from hedge funds but bankers also reported interest from long-only accounts.
Pricing was fixed at HK$59.25 per share, the bottom end of a 5% to 3% discount to the stock's HK$62.35 close. The deal only represents about 7.53 days trading volume based on the stock's current average daily turnover, which has spiked markedly over the past few months.
Back in April, the stock was recording an average daily turnover of about $27 million. As of June 29, it had almost doubled to $49 million.
Short selling relative to total turnover stood at 16.47% on Tuesday, up from 0.5% in April, but down from its peak of 54.52% on June 12.
"Hedge funds like this stock because it's so liquid," said one banker.
The vendor chose a good day to hit the bid since Dalian Wanda had closed up 3.14%. Year-to-date the stock is up 25.9%.
However, it hovered around its IPO price in the three months to early April when it climbed 60.1% over the space of the next two months.
Much of this buying activity was attributed to Stock Connect investors readying themselves for the group's inclusion in the Hang Seng China Enterprises Index on June 2. However, in line with the general market Dalian Wanda then traded down throughout most of June, falling 21.7% between June 5 and June 28.
How it performs when it re-opens for trading on Thursday will depend on whether the Hong Kong market decides to follow China or Europe's lead.
Both the Shanghai and Shenzhen Composite Indices fell heavily on Wednesday, reversing their gains on Tuesday when Shanghai recorded its biggest one-day gain in six years. The Shanghai Composite Index closed Wednesday down 5.23%, while the Shenzhen Composite Index dropped 4.79%.
In Europe meanwhile markets were responding positively to news that the Greek government had reportedly backed down and agreed to most of its creditors' conditions. The FTSE 100 closed Wednesday up 1.34%, the Dax up 2.15% and the CAC up 1.94%.
Moving the goalposts
Dalian Wanda chairman Wang Jianlin is nothing if not ambitious when it comes to his company's future growth and scale, not to mention his country's chances of hosting and winning the World Cup. Wang has said he wants to raise China's global profile in soccer, which could help the country host the high-profile tournament in the future.
In interviews with domestic newspapers, China's richest man recently outlined a five-year plan to boost his company's market capitalisation to $2 trillion.
This appears to envisage leapfrogging Apple, which currently ranks as the world's largest company by market capitalisation on $723 billion. Dalian Wanda lags someway behind on $36.41 billion, but its chairman, at the very least, appears to be optimistic about 5,393% of upside potential.
Wang also said he hopes to expand the group's asset base to $2 trillion, revenues to $1 trillion and net profits to $10 billion.
He hopes to achieve this by increasing the number of Wanda Plazas from 135 to between 400 to 500 by 2020 and 1,000 by 2025. At the same time, he hopes earnings from rental and fee income will increase to two thirds of the total.
The company has previously indicated its intention to move to an asset-light model to achieve its chairman's ambition, sharing the rental upside and management fees in partnership with financial institutions.
However late last week Standard & Poor's put the company's BBB+ rating on negative outlook over concerns about its high leverage over the next one to two years and the timing and magnitude of the strategy change.
The rating agency wrote that it expects the company to continue "generating about 90% of its revenue and profit from property sales over the next two years, given its still-large land bank of more than 70 million square metres. This land bank is sufficient for development for at least four to five years."
UBS was more optimistic in a recent research report. It argued that Dalian Wanda should be able to lift rents as its commercial property portfolio matures. It estimates the group it will be able to charge rents equal to about 13% of its occupancy costs, up from 9% and in line with international standards.
The Swiss bank also believes Dalian Wanda's retail operations should benefit from government moves to reduce tariffs on popular imported goods to try and boost domestic consumption.
UBS was one of the bookrunners for Dalian Wanda's placement alongside CICC.
