Shareholders in Malaysia's RHB Capital and Axiata cash in

After a second strong day on the Malaysian stock exchange, shareholders in two of the country’s most well-known names approached investors last night in an attempt to secure some profit before year end. The Employees Provident Fund (EPF) sold a 4.5% stake in domestic bank RHB Capital and Telekom Malaysia divested 1.1% in mobile operator Axiata Group, raising a combined $368 million.

CIMB and Credit Suisse were joint bookrunners for both placements, resulting in a busy night for the two firms, with RHB Capital’s investment banking arm joining them on EPF’s sell-down in RHB.

Both deals received strong interest from institutional investors and since the Axiata block was done on a first-come, first-serve basis and open for only about 10 minutes, the bookrunners were able to redirect some of the interest for Axiata into RHB instead. There was some price sensitivity, however, and neither seller was able to reap its maximum target.

EPF went out aggressively, saying it sought to sell 96.907 million shares with the option to upsize by another 86.139 million. If successful, this would have meant an 88.9% increase of the size, which may have spooked some investors. However, in the end, a source said it was the seller that decided not to exercise the upsize option at the final price, but to stick with the base deal for now. Supposedly, the fund would have sold if it had been able to realise a higher price. According to local media EPF said in June that it will reduce its stake in RHB to 40% by mid-2011. This transaction will see its holdings fall to 48.9% from 53.4%. RHB Capital is the holding company of Malaysia’s fourth largest fully-integrated financial institutions group.

The shares were offered in a range between M$7.50 and M$7.90, which represented a discount of up to 5.1% versus yesterday’s close. The top end of the range was equal to the latest close. The final price was fixed at M$7.70 – the mid-point -- for a 2.5% discount and a total deal size of M$746.2 million ($237 million).

Most of the buyers were long-only funds and included Malaysia specialists, local funds and some existing shareholders. Hedge funds were likely put off by the relatively low liquidity in the stock and the fact that the placement accounted for about 78 days of trading. RHB is also trading close to its recent 52-week high of M$8.10, which it reached on November 1 after rallying 44% since late May

Even though EPF has clearly stated that it intends to reduce its stake further, it has agreed to a 90-day lockup. However, it has the right to sell up to 5% of its holdings as part of its day-to-day portfolio management.

Meanwhile, Telekom Malaysia offered 90 million Axiata shares at a price between M$4.58 and M$4.74, or a discount of 0% to 3.4% versus yesterday’s close of M$4.74. It too flagged that it intended to sell its entire 2.27% stake in the company, although this placement didn’t include an upside option. However, in a filing with Bursa Malaysia it said it plans to sell all its 191.5 million shares in Axiata, which it holds through wholly-owned TM ESOS Management, within 12 months, as part of its efforts to divest non-core investments. In a research note, Ambank analysts pointed out that since Axiata is not a dividend-paying stock, there is no incremental income accruing from the investment. Telekom Malaysia too will be subject to a 90-day lockup.

Axiata was previously owned by Telekom Malaysia, but was spun off for a separate listing through a dividend in specie in April 2008. At the time of the demerger, Axiata was known as TM International.

This current sale, which accounted for about six days worth of trading, was priced near the bottom of the range at M$4.60 for a 2.95% discount and a total deal size of M$414 million ($131 million).

That the price ended up towards the low end was not too surprising given that the order book was open for only 10 minutes. Also, the share price gained 2.8% yesterday to a new 52-week high after breaking out of the M$4.40 to M$4.60 range where it has been stuck since the beginning of September. Axiata has also gained 55% this year, which is three times the 18% rise in the benchmark FTSE Bursa Malaysia KLCI index.

Those gains meant most hedge funds stayed away from the deal.