Real Gold raises $156 million from placement

Real Gold Mining, a Chinese gold miner that in February 2009 became the first company of size to list in Hong Kong following the financial crisis, has raised HK$1.22 billion ($156 million) from an upsized placement. The money will be used for acquisitions, capital expenditure and gold mining exploration activities.

While no specifics were announced, sources said yesterday that the company has identified an acquisition target and the timing of the share sale was most likely related to that. However, it also comes at a time when investor confidence appears to be returning to the equity markets in the region and is sparking a pickup in capital markets activity. Also in the market yesterday were two block trades in India, in Kotak Mahindra Bank and HCL Technologies, which were launched on Wednesday night but completed before the start of trading in India yesterday.

The larger of those blocks, which saw ING sell its entire 3.1% stake in Kotak Mahindra Bank, raised Rs8.00 billion ($175 million), while the upsized HCL transaction fetched Rs5.81 billion ($126 million) for the promoters.

Real Gold was suspended from trading all day yesterday and the deal was launched first thing in the morning, giving Asian investors ample time to decide whether to participate. At the same time, the books were kept open to give investors in Europe and the US who met with the company during a non-deal roadshow in May a chance to take a look at the deal.  

The result was an order book that included both existing investors, who chose to top up their holdings to prevent dilution, and new long-only names who used the placement as an opportunity to start growing an exposure to this stock. Several of the new investors bought "in chunky sizes", according to a source. About 75% of the demand came from Asia and close to 80 investors participated in the deal.

Real Gold initially offered 75 million new shares with an option to sell an additional 25 million. And with the deal said to have been "multiple times" covered, it was upsized in full to 100 million shares. The shares were offered at a price between HK$11.88 and HK$12.35, which represented a discount of 7% to 10.5% versus Wednesday's close of HK$13.28. The final price was fixed in the upper half of the range at HK$12.15 for an 8.5% discount.

The discount was quite wide compared with other recent placements in Hong Kong, but this may have been necessary given that the stock is not that liquid; the deal accounted for about 33 days' worth of trading volumes based on the daily average over the past month. It also represented 12.4% of the existing share capital. And with regard to the final pricing, there may also have been some trade off to allow for the full 33% upsize.

"The company is still growing and will be coming back to the market," the source said with regard to the fact that the price was fixed inside the range.

Still, the concession to investors is shrinking. The company did a $130 million follow-on in September last year to pay for another acquisition, which was priced at the bottom of the indicated range for a significantly deeper 15% discount. That deal too accounted for about 12% of the share capital at the time.

Meanwhile, in India, ING's sale of approximately 10.68 million shares in Kotak bank was priced at the top of the indicated range at Rs750 for a 4.3% discount. The shares were offered at a price between Rs730 and Rs750 apiece. The deal was covered an hour after launch, but the books were still kept open until yesterday morning to give Asian investors a chance to participate.

About 40 investors submitted orders, including both domestic and foreign accounts.

Kotak bank's share price has not had the same positive recovery in the past month as the overall Indian market, which has gained about 10% since late May, and even before the placement it was down about 2.9% so far this year. In the wake of the transaction yesterday, the share price fell another 3.5% to Rs756.55, although it held above the placement price throughout the session.

The HCL Technologies transaction comprised a base deal of 10 million shares that later upsized by two-thirds to 16.75 million shares. They were offered in a range between Rs347 and Rs355 and priced at the bottom for a 6.9% discount. The seller was parent company HCL Corp.

The deal was supported by an anchor order of $50 million, and a source noted that this one investor, which is close to the company, was a key reason why the deal was priced at the bottom. The rest of the order book was said to have been much less price sensitive and would have supported a higher price. This stock too held up well in yesterday's trading and finished 3.6% above the placement price after falling 3.6% on the day to Rs359.50.

Citi was a bookrunner on all three of these transactions. Deutsche Bank was a joint bookrunner on the HCL trade.