Sell-downs in Southeast Asia amid index gains

Malaysia’s government investment fund Khazanah last night sold a small portion of its stake in CIMB, the country’s second largest financial services provider, raising M$1.17 billion ($370 million). The sale came as the Malaysian stockmarket hit a new two-year high, and as international investors are starting to view the market as a bit of a Southeast Asia laggard with the potential for a year-end rally.

Malaysia’s benchmark index is up 16.9% so far this year, which puts it ahead of major Asian markets like Hong Kong, Singapore, Korea, Taiwan, China and Japan. However, it is well behind this year’s top performers – Indonesia and the Philippines – which have gained 40% and 38.2% respectively amid strong economic growth supported by domestic consumption.

Thailand is also doing well with a 33% gain in the SET index so far this year, and here too existing investors took advantage of the positive environment last night by offloading part of their stake in BEC World Public Company, a TV and radio broadcaster. While not as large as the CIMB block, the deal aroused a lot of interest among both domestic and international investors, allowing it to be upsized by 14.3% to Bt3.78 billion ($126 million). The sellers comprised seven members of the Maleenont family, which will still control 51% of the company after this transaction.

BEC World is one of six free-to-air TV broadcasters in Thailand and has recorded strong share price gains over the past three months as advertising rates have been increasing. The advertising angle means that, like CIMB, the stock is really viewed as a play on domestic consumption in Asia -- a theme that has been popular with investors for some time and is showing no signs of losing its allure.

Indeed, even after the upsize option was exercised in full, the BEC World placement was comfortably oversubscribed and attracted about 60 investors, a source said. The sellers offered approximately 97.35 million shares with the option to upsize to 111.27 million. At the final size, the deal accounted for 5.6% of the share capital and about 45 days of trading volume. The latter by itself would have helped bring investors into the deal as it offered a rare opportunity to buy the stock in a meaningful size without the risk of moving the share price. But, in addition to that, the deal was also marketed with a tempting discount of up to 10.2%.

The final price was fixed at Bt34, one baht above the bottom of the Bt33 to Bt36.75 price range, resulting in a 7.5% discount. The top end of the range was equal to yesterday’s closing price, which is only 6.4% below the year high of Bt39.25 that the stock hit two weeks ago. Year-to-date BEC World is up 49%, but despite the gains, analysts are overwhelmingly positive on the stock with 18 of 24 followers of the company having a buy recommendation on it. Only three are recommending clients to sell.

According to a source, the deal was to be split roughly 50-50 between international and domestic investors and the majority of the buyers were said to have been existing shareholders. The deal was jointly arranged by Bank of America Merrill Lynch and Thailand’s Phatra Securities.

CIMB

The CIMB block didn’t attract as many investors as BEC World, which isn’t surprising since it was offered at a much tighter discount between zero and 2%. Momentum-driven hedge funds in particular were few and far between as they likely didn’t see much value in buying the stock this close to the market price – even though the deal size accounted for about 15 days’ worth of trading volume.

Instead the deal was placed primarily with major long-only domestic and Asian accounts. About 25%-30% of the deal went to Malaysian buyers, one source estimated, but noted that there was also some demand out of the US. However, the number of investors was relatively small at about 20.

Khazanah sold 147 million shares, which represented no more than 2% of the company, at a price between M$7.99 and M$8.15. Not surprisingly, the price was fixed at the top for the maximum 2% discount.

The tight discount was a result of the mandate being awarded following competitive bidding by three to four banks. The same phenomenon was noted on some of the large blocks out of Hong Kong in September as well.

But with CIMB being the third largest listed company in Malaysia, the deal offered an opportunity for investors who wish to increase their exposure to the benchmark index -- and to Malaysia as a whole, in the hope that the stockmarket will catch up with Indonesia and the Philippines over the next few months. The deal was arranged by UBS as the sole bookrunner.

CIMB, which offers both commercial and investment banking services, reached a 2010 closing high of M$8.31 three weeks ago, and has traded mainly sideways since. It is up about 27% so far this year.

Khazanah has been easing its holdings of domestic stocks over the past year-and-a-half to help increase the free-float in local stocks, while at the same time freeing up capital to make higher-return investments offshore. However, it is still keeping sizeable stakes in the country’s key companies and will own 29% of CIMB after this transaction. Khazanah will be subject to a 90-day lockup before it is allowed to sell any more CIMB shares.