Shenzhou International Group raised HK$1.17 billion ($151 million) from a top-up placement on Friday. The order book opened at around 9.15am, after the stock was suspended from trading, and closed at about 4pm.
Shenzhou International is the biggest vertically integrated original equipment manufacturer (OEM) in China’s knitwear industry and a major supplier to Japan’s Uniqlo. It offered 85 million shares at a price between HK$13.75 and HK$14.60 each, which translated into a discount of 3.8% to 9.4% versus Thursday’s close of HK$15.18.
The price was fixed slightly above the bottom of the range at HK$13.80 for a 9.1% discount to the latest close and a 7.6% discount to the average closing price in the previous five trading sessions.
Credit Suisse was the sole bookrunner of the deal.
The launch of the placement coincided with robust gains in the company’s share price and as global stock markets gathered upbeat momentum towards the end of the week. European and US markets turned weaker again on Friday, but the Shenzhou International placement was already completed by then.
After reporting its full-year earnings in late March, Shenzhou International’s share price touched a record of HK$15.32. Thursday’s close translated into a 44% gain so far this year — well above the 12% rise in the Hang Seng Index. Since its IPO in 2005, the stock has gained more than five-fold.
US stocks gained more than 1% on Thursday, and Asian markets followed suit on Friday, partly as investors were relieved that a rocket launch by North Korea ended in failure. The gains came despite signs of a slowdown in China, with data showing that the country’s economy expanded by 8.1% year-on-year in the first three months of 2012, down from 8.9% growth in the fourth quarter last year.
The deal was fully covered in the early afternoon. Most of the buyers were long-only existing shareholders, of which most were Asia-focused, a source said. The deal was open to onshore US investors, but because it had already drawn a strong response in Asia, the bookrunner chose to close the books at 4pm Hong Kong time. However, the upsize option of 30 million shares was not exercised, supposedly because it wanted to make it a “tight” deal, the source said. This does suggest that there wasn’t a whole lot of excess demand.
The offering accounted for 6.4% of the enlarged share capital, but was equivalent to about 96 days’ trading volume, based on the daily average in the past three months. The low liquidity explains why hedge funds weren’t particularly interested in the deal, even though the discount was fairly decent.
Indeed, the company’s primary objective with the share sale was to improve the liquidity in the stock, the source said. The hope is that the placement will help improve the demand situation and allow larger funds to buy the stock.
The textile company, whose major products include sportswear, casual wear, lingerie and other knitted products, plans to use most of the proceeds to construct a new fabric factory and to expand its existing garment factory and retail business. Some of the money will also go towards debt repayment, the term sheet showed.
Headquartered in Ningbo, Shenzhou International’s major markets include Japan, which accounts for nearly 36% of sales, Europe, the US and China. Uniqlo, a Japanese casualwear retailer owned by Fast Retailing that is often dubbed as Japan’s Gap, is the single biggest customer, according to the term sheet, while other clients include Adidas, Nike and Puma. Shenzhou International has factories in the Chinese cities of Quzhou and Anqing, as well as in Cambodia.
For the year ended December 2011, the company booked a profit attributable to equity holders of Rmb1.7 billion ($269 million), a 34% jump from a year earlier.
