The sale, which came only four months after the company completed its initial public offering on the New York Stock Exchange, was priced at $24.50, which marked a discount of 2.5% to TuesdayÆs close of $25.12. Observers described this as ôquite tightö given that the share price had risen in each of the previous five trading days. Between the filing on January 17 and pricing, the stock fell 4.3% from a record high of $26.25, however.
Still, it was a sizeable sale in that it accounted for 65% of the freefloat, which would have required a bit of an extra discount to gain acceptance in the market, they say.
Indeed, the discount was much wider than the 0.93% fetched by a $529 million combined primary and secondary share sale by Nasdaq-listed Focus Media last week, but this stock has been listed longer (since July 2005) and the size of its sale was also significantly smaller relative to the freefloat.
MindrayÆs offering was said to have been more than two times covered with about 125 investors in the book. One source estimates that about 55% of the demand came from the US, while Asian investors contributed about 30% and European investors 15%.
All the shares on offer were secondary with 10 pre-IPO investors coming together to cash in part of their gains in the Chinese medical device manufacturer, which has rallied 86% since its listing on September 26. Under the original terms, these shareholders were meant to be locked up for six months, but a source says they had been released from this obligation to enable them to arrange an ôorchestrated sell-downö ahead of time. The earlier sale also allows them to capture the current strength in the market.
The same will happen with New Oriental Education & Technology Group, which is expected to price an offering of 7 million ADS next week, of which 92% are backed by secondary shares. The Chinese provider of education services listed a few weeks before Mindray on September 8 but will be only five months into the six-month lock-up at the time of the upcoming transaction, which would total about $250 million based on current market prices.
ôThe market is unlikely to be upset about the early sales because both stocks are up dramatically,ö the observer says about the release of the lockups. ôMost investors also prefer an orderly sell-down where the shares are placed into solid institutional hands to having a lot of shares trickle into the market randomly once the lockup expires.ö
When MindrayÆs share sale was first announced in mid-January, analysts at Merrill Lynch noted that the early release of the lockup ôshould pre-empt concerns of (a) stock overhangö. ôIn addition,ö they added, ôthe increased liquidity from the offering should provide a good opportunity for many potential buyers who have been waiting on the sidelines.ö
Technically, there would have been no problems to release the lockups in either case as the bookrunners from the earlier IPOs are also arranging the current sell-downs. For New Oriental this means Credit Suisse and Goldman Sachs, while MindrayÆs two IPO arrangers, Goldman Sachs and UBS, were joined by JPMorgan on the sale completed Tuesday.
There will be a new three month lock-up for the company and the selling shareholders following this transaction.
The size of the Mindray offering was reduced by 13% compared with the original filing after two of the 11 selling shareholders - the chairman and the president - decided to sell fewer shares. According to the source, the pair got inspired by the positive story they were telling investors during the roadshow and resolved to retain a bit more of their respective holdings in the hope of capturing a higher price later on.
The final deal size amounted to $9.83 million ADS, or 10.8% of the company, compared with the initial filing of 11.28 million. The greenshoe was trimmed to 1.47 million ADS to keep it at the maximum 15%.
The sellers included a fund controlled by Goldman Sachs, which will reduce its stake in the company to 5.9% from 8.5%. Only two of the selling shareholders offloaded their entire stake in the company.
The company continues to turn out strong earnings growth, despite a tough business environment in the final quarter of the year due to a government anti-corruption campaign targeted at hospitals. In a pre-announcement of its full-year earnings on January 12, Mindray projected its net revenues will have risen to Rmb1.47 billion to Rmb1.5 billion ($189 million to $193 million), compared with Rmb1.08 billion in 2005. Net profit should have increased about 75% to Rmb360 million to Rmb375 million ($46 million to $48 million) from Rmb205 million in the previous year.
This is well above analyst projections at the time of listing, which suggested that the bottom line will improve by about 30% per year over the next three years as the company continues to expand and grab market share in the international market.
At the end of last year Mindray signed an agreement to set up a new research and development and manufacturing facility in Nanjing which will command a total investment of up to $150 million over 3.5 years. The first year investment will be no more than $30 million, however. The facility is expected to be operational by 2009 and will strengthen the companyÆs presence in the Yangtze River Delta surrounding Shanghai, it said.
MindrayÆs share price fell in the wake of the share sale yesterday. Three hours into the trading session it was off 3.4% at $24.27.
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