Hong Kong’s stock market slumped for a second day running yesterday, but investors clearly aren’t afraid to put their money to work in companies they like, especially not if they can do it at a discount. Indeed, Hong Kong saw no fewer than four placements completed last night, which allowed two companies to raise fresh capital and two existing shareholders to monetise part of their holdings.
Together they raised at least $408 million, although three of the deals were well below $100 million in size.
The largest of the four was a new H-share issue for Shandong Weigao Medical Polymer, which raised HK$1.76 billion ($227 million). The Chinese designer and maker of single-use medical devices such as syringes, blood bags, orthopaedic materials and blood purification consumables, tapped into the current investor interest in healthcare companies to raise funds for future M&A activities and to expand its existing production.
Also raising fresh capital was small-cap gold miner Sino Prosper State Gold Resources, which sold HK$418 million ($54 million) worth of new shares through a top-up placement. Despite its modest market capitalisation of less than $400 million, the company is popular with global funds and yesterday’s placement was upsized by 10% to 1.1 billion shares, or 16.3% of the company — making it by far the largest of the four deals relative to the issued share capital.
Meanwhile, the asset management arm of Ping An Insurance Group sold HK$351.9 million ($45 million) worth of shares in Value Partners Group, trimming its stake in the Hong Kong-listed fund manager by about one-third.
Finally, a company controlled by the chairman and founder of China Metal Recycling was seeking to raise at least HK$612 million ($79 million) by selling a 2.8% stake in the company. The deal was said to have been more than five times covered, which allowed it to price at the top of the indicated range.
All four deals were said to have been well supported by existing shareholders, which may have helped attract new names to the stock. However, the fact that they were all marketed at fairly attractive discounts no doubt also played a role. But investors seem to be holding their ground and Weigao, Sino Prosper and Value Partners were all priced at the bottom of their respective offering ranges.
Shandong Weigao
Interestingly, of those three deals, Weigao achieved the tightest discount even though it was the largest of the three transactions in dollar terms. The offering, which was led by CICC and Morgan Stanley, also accounted for about 45 days worth of trading volume, based on the 30-day average.
The company offered approximately 85.6 million new H-shares at a price between HK$20.60 and HK$21.10, which translated into a discount of 5.4% to 7.6% versus yesterday’s close of HK$22.30. It was priced at HK$20.60 for the maximum 7.6% discount. However, the stock gained 3.2% yesterday and based on the volume-weighted average price, the discount dropped to 6.1%.
The deal, which accounted for 10% of the existing H-share capital and 4% of the total share capital, was said to have been multiple times covered with the majority of the demand coming from long-only accounts. The buyers included global funds as well as existing shareholders and the allocation was skewed towards the top-10 orders. More than 50 investors participated altogether.
Healthcare, particularly in China, is in focus at the moment and investors are keen to gain exposure to this rapidly growing industry. NT Pharma, a Shanghai-based supply chain and sales service provider for vaccines, last week raised $208 million from a Hong Kong initial public offering, while Shanghai Pharmaceuticals, which is already listed in its home town, is about to launch a Hong Kong IPO of between $1.5 billion and $1.8 billion. And on Friday last week, Sinopharm Group, the largest distributor of pharmaceutical products in China, raised $450 million from a private placement arranged by CICC, Morgan Stanley and UBS, that was priced at an 8% discount.
Sino Prosper
The Sino Prosper offering differed from the others in that it was preceded by a roadshow earlier this month, which took the management to meet with potential investors in the UK. The stock was also suspended from trading, allowing the deal to be launched at 10am yesterday morning. CLSA and Samsung Securities were joint bookrunners.
The company offered 1 billion shares with an option to upsize to 1.35 billion. The price was indicated at HK$0.38 to HK$0.41, which translated into a discount of 5.7% to 12.6% versus Tuesday’s close of HK$0.435.
After a full day of bookbuilding, the price was fixed at the bottom of the range for a 12.6% discount, but at the same time the size was increased by 10% to 1.1 billion shares. According to a source, there was enough demand to exercise the entire upsize option, but perhaps the issuer wanted to limit the size given that the price was capped at the low end. At the final size, the deal accounted for 16.3% of the issued share capital and more than 35 days worth of trading volume.
The demand came primarily from Asia, but with additional interest from Europe and the US, including a number of substantial new shareholders. Investors seemed to be excited about the acquisition of the company’s first silver mine, which was announced recently.
Value Partners
Ping An’s sell-down in Value Partners, a fund manager focusing primarily on investments in small- and mid-cap companies in Greater China, appears to have been part of normal portfolio reshuffle by a financial investor. The Chinese insurance company sold close to 33% of its Value Partners shares, reducing its stake in the company to about 5.7%. UBS was the sole bookrunner.
The 51 million shares, which represented about 2.8% of the share capital and just over 20 days worth of trading, were offered in a range between HK$6.90 and HK$7.20. This corresponded to a discount between 5.0% and 9.0% versus yesterday’s close of HK$7.58 and like the other two deals it was priced at the bottom for the maximum 9% discount.
A source said the deal was well supported by existing shareholders who found the discount appealing, as well as new investors. More than 25 investors, mainly from Asia and the US, participated in the transaction.
China Metal Recycling
The sell-down in China’s largest scrap metal recycling company appeared to be a classic case of the controlling shareholder taking advantage of a sharp rally in the share price to monetise a small portion of his holdings. The chairman told investors that the main purpose of the transaction was to improve the liquidity in the stock and broaden the shareholder base. However, it is probably not a coincidence that he decided to do that on the back of a 30% gain in the share price since late March.
The deal, which was arranged by Bank of America Merrill Lynch, accounted for 5.3% of the company and will reduce the chairman’s stake to approximately 51.2%.
The deal comprised 60 million shares that were offered at a price between HK$10.20 and HK$10.60, or a discount of 4.5% to 8.1% versus yesterday’s close of HK$11.10. And thanks to the strong demand, this deal was able to price at the top, resulting in a tight 4.5% discount.
This deal too is said to have attracted predominantly long-only funds, including existing shareholders as well as new names. Resources funds and Asian regional funds were among the buyers, according to a source. About 10% of the demand came from Europe, with the rest split fairly evenly between Asia and the US.
