Chinese equipment leasing company Far East Horizon became the subject of the first Asian block trade this year when its parent company decided to trim its stake to below 30% through a HK$2.14 billion ($276 million) transaction.
The shares were placed with a small group of investors on Sunday and crossed in the Hong Kong market when the trading opened yesterday. The club-style execution is similar to a number of other deals in the second half of last year and suggests that banks will continue to look for out-of-the-box to solutions to get deals done, particularly when dealing with illiquid names.
This particular deal did come with a term sheet, although it wasn’t particularly widely distributed. But the fact that the shares were sold over the weekend suggests that the transaction was at least partly privately negotiated. The shares were also offered at a fixed price and the majority of the deal was bought by one single investor.
Far East Horizon’s parent, Sinochem Group, offered approximately 374.8 million existing shares, which accounted for 11.4% of the outstanding share capital and about 29% of Sinochem’s total stake in the company. The shares were sold at HK$5.70 each, which translated into a 13.8% discount to last Friday’s close of HK$6.61 and a 10% discount to the 10-day volume-weighted average price.
The discount does look wide, but the deal accounted for more than 100 days’ trading volume, so it may well have been necessary.
According to a source, the buyers were mainly China-focused funds and investment companies. In a call yesterday morning, the management told investors that the anchor investor was Taiwan-backed insurance company Cathay Life. It didn’t reveal exactly how much the latter had bought, but noted that the company held a small stake in Far East Horizon already, which will increase to about 9% after this deal. As a result, Cathay Life will become a strategic investor in the company.
Sinochem’s stake will fall to 27.9% from 39.3%. It has agreed to a 12-month lockup to reduce the risk of investors starting to speculate whether it will try to sell the rest of its shares as well.
The parent offered no explanation for the sale, but the share price has gained almost 48% since late September and closed at a nine-month high on Friday last week. The stock came under pressure earlier in the year after Far East Horizon raised $371 million from a follow-on share sale in late March and as of Friday, it was still down 4.6% from the beginning of 2012.
The follow-on was priced at a 9.1% discount versus the latest close, or at an absolute price of HK$6.40. The sale came just 12 months after the company listed in Hong Kong through a $658 million IPO that was priced at HK$6.29 per share.
The recovery in the past few months has coincided with signs of a pickup in China’s economic growth and an improved outlook for small and medium-sized companies. The latter make up Far East Horizon’s main customer base.
The company’s share price held up well after the sale yesterday, indicating that the shares were placed with long-term investors. At the end of the session it had fallen only 3.6% from Friday’s close, which left it 11.8% above the placement price.
UBS was the sole bookrunner for the transaction.
