Global markets have come under pressure again this week amid a series of unexpected events, including the Boston bombings, slower-than-anticipated growth in China, the collapse in gold prices, as well as disappointing earnings for Bank of America and concerns about weakening demand for Apple products overnight.
But two primary placements yesterday showed that investors are still happy to put money into Asian companies. Both deals were small and came at fairly attractive discounts, but encouragingly they were both upsized after amassing demand from a wide group of investors.
NewOcean Energy Holdings, the Hong Kong-listed liquefied petroleum gas distributor that is about to set up a joint venture with Sinopec, raised HK779.2 million ($100 million), while Singapore-listed AIMS AMP Capital Industrial Reit (AA Reit) pocketed S$110 million ($89 million).
The specific use of proceeds in both cases meant investors were happy to commit more capital even though the share prices of both companies have gained strongly in the past six to 11 months.
NewOcean
As if to test the market, NewOcean went out with a pretty modest deal to start with, offering to sell 116.5 million shares which at the indicated price range suggested a deal size of up to $75 million. However, the offering came with an option to sell an additional 50 million shares and it quite quickly became clear that it would be able to exercise that in full.
So, the deal, which was done through a top-up placement, was increased by more than 40% to 166.5 million shares, or 12.7% of the existing share capital.
The shares were offered at a price between HK$4.68 and HK$5, which translated into a discount of 7.6% to 13.5% versus yesterday’s close of HK$5.41.
At first glance the discount looked wide, even for a deal that accounted for 15 to 20 days of trading volume, but when considering that the stock jumped 16.2% the day after the company announced its JV with Sinopec last week, it seems pretty reasonable. In fact, even the bottom of the range would have represented a record high before last week.
Hence, it was no great surprise that the demand was price sensitive and that the price was fixed at the bottom, at HK$4.68, for the maximum 13.5% discount.
It was also no surprise that that kind of discount attracted a number of hedge funds, but according to sources, they were scaled back quite aggressively.
The deal was driven partly by reverse inquiries that were triggered both by the JV announcement and by series of meetings that the management has had with investors recently and sources said the bookrunners had good indications on the potential demand before launch.
Overall, about 50 accounts came into the transaction, but the allocation favoured existing shareholders and the investors behind the reverse inquiries, and some accounts were said to have received no shares at all.
The demand came primarily from Asia, but with the order books closing at 7pm Hong Kong time after being open for less than two-and-half hours, investors in other regions were given a limited opportunity to participate. That was perhaps just as well though, since European markets were starting to look pretty dismal around the time the books closed and by the end of the session, the German market had lost 2.3% and the French market was down 2.4%. London held up better, but still finished 1% lower.
And the sell-off continued in the US overnight with the Dow Jones index falling 1% and the Nasdaq Composite off 1.8%. The VIX volatility index jumped 18.3%.
The enthusiasm for NewOcean was clearly supported by last Tuesday’s announcement that the company has agreed with China Petroleum and Chemical Corp, the Hong Kong-listed arm of China’s largest refiner that is commonly known as Sinopec, to set up a JV to jointly develop the LPG and LNG markets in the Chinese city of Guangzhou.
However, even before that announcement, NewOcean’s share price had risen 158% since mid-September.
Part of the money raised from the placement will be used to cover NewOcean’s capital commitment for the JV, in which it will hold 49%. But a portion will also fund the upgrade and expansion of existing LPG or liquefied natural gas (LNG) facilities, as well as the installation of new facilities, including the Zhuhai LPG terminal.
The placement was led by Credit Suisse and Macquarie.
AIMS AMP Capital Industrial Reit
AA Reit was actually the first of the two deals to hit the market yesterday as the bookrunners chose to suspend the stock in the afternoon and launch the deal at 1.30pm.
The real estate investment trust, which focuses on industrial properties, sought to raise a fixed amount of S$100 million ($81 million), but demand was strong enough that it decided to add another S$10 million at the time of pricing, increasing the total amount to $89 million.
The new units were offered at a price between S$1.575 and S$1.625, which translated into a 6.3% to 9.2% discount versus the latest market price of S$1.735. The discount narrowed to between 4.1% and 7.7% after adjusting for a dividend of 3.99 Singapore cents per unit that won’t be available to investors participating in the placement.
According to a source, the bookrunners had pre-launch indications from investors for almost the entire deal and the transaction was fully covered within an hour. Shortly after that, the banks went out with a message that the price would be fixed around the mid-point, and that didn’t change even as the deal was upsized.
The final price of S$1.60 equalled a 7.8% discount to the close, or a 5.6% discount versus the dividend-adjusted close. The discount to the adjusted one-and-a-half-day volume-weighted average price (up until the stock was suspended yesterday) was an even narrower 3.2%.
At the final price, the trust ended up selling 68.75 million new units, which equalled 15.5% of the existing share capital.
The deal attracted just under 80 investors. Like NewOcean, there was good support from existing unitholders, which took up 20% of the deal. In terms of type of investors, the book was split about 70-30 between long-only accounts and hedge funds.
Investors were no doubt attracted by the implied yield, which at the final price worked out at about 6.1%. However, AA Reit has also provided a lot of capital growth in the past year with the unit price up almost 58% since mid-May last year. It closed at a fresh record high yesterday, after gaining 4.5% in the past one-and-a-half sessions on the back of a strong earnings report.
Three-quarters of the proceeds will be used to partially fund phase three of a logistics warehouse on 20 Gul Way in Singapore’s Jurong Industrial Precinct and the ongoing redevelopment of 103 Defu Lane near the Paya Lebar Central commercial hub into a modern six-storey industrial facility with twice the gross floor area of the existing warehouse.
AA Reit said it received an approval-in-principal from the Urban Redevelopment Authority to rezone the plot ratio of the site at 20 Gul Way to 2.0 from 1.4, which will allow it to add an additional 497,000 square feet of gross floor area. Once all three phases are completed, the property is expected to be one of the largest integrated ramp-up logistics warehouses in Singapore.
Another 22% will go towards potential acquisitions, asset enhancement initiatives or other future redevelopment opportunities, while the rest will cover placement-related expenses.
AA Reit has a portfolio of 25 industrial properties in Singapore with a combined appraised value of S$1.04 billion as of the end of March this year.
It is sponsored by two Australian firms – AIMS Financial Group, which has a diversified focus on lending, securitisation, real estate investment, private equity, investment banking, funds management and e-commerce across the Asia-Pacific and manages about A$1.5 billion ($1.55 billion) of assets; and AMP Capital, which is a real estate specialist with more than A$128 billion of assets under management.
Standard Chartered acted as the sole global coordinator for the offering and was also a joint bookrunner together with Macquarie and Religare Capital Markets.
