Hong Kong-listed Sinopharm Group, China’s biggest distributor of pharmaceutical products, has raised HK$4.08 billion ($526 million) from a private placement ― its second such deal in two years.
The deal was completed last Wednesday night after a couple of days spent gauging the demand among a targeted group of potential investors. The investors were told that the bookrunners planned to launch the deal last Thursday, but might go sooner if they felt the deal was coming together well.
According to a company statement issued Thursday morning, the price was fixed at HK$24.60 per share, which translated into an 8.9% discount to Wednesday’s closing price of HK$27. The share price had gained 3.7% earlier that day, although it had also fallen 4.6% in the previous two days after Sinopharm released its 12-month earnings over the weekend.
The company sold about 165.7 million new H-shares, which accounted for 20% of its existing H-share capital and 6.9% of its total share capital, including the unlisted domestic shares owned by its controlling shareholders.
As with other private placements in Hong Kong-listed Chinese companies, the deal had to be sold to between six and 10 investors. According to sources, it did go to the maximum 10 accounts, which is in line with common practice for this type of deal.
The bookrunners, which according to the announcement were doing the deal on a “best efforts” basis, were said to have had interest from more than 10 investors, and one source said the offering was oversubscribed. The demand was split fairly evenly between long-only and hedge-fund accounts, and included both existing shareholders and investors that were new to the name.
Sinopharm was one of the first Hong Kong-listed Chinese companies to do a private placement back in April 2011. At $450 million, that deal was slightly smaller and it was priced at slightly tighter discount of 8%. It was arranged by the same three banks that led this latest deal, namely China International Capital Corp (CICC), Morgan Stanley and UBS.
Since that first deal, private placements have become more common. Issuers like them because they tend to provide greater certainty of execution. And because the average investment size is often larger than on a public transaction, they also tend to attract more long-term investors.
In February, China Petroleum & Chemical Corp, commonly referred to as Sinopec, raised $3.1 billion from a similar private placement of new H-shares. It too went to the maximum 10 investors and was priced at a 9.5% discount to the latest close.
Some bankers have noted that it can be easier, and quicker, to secure the necessary approvals from the Chinese regulators for a private placement than for a public market transaction that is offered to the broader investor community.
Sinopharm said the deal was approved by the State-owned Assets Supervision and Administration Commission, an agency that oversees state-owned mainland enterprises, in December last year and by China Securities Regulatory Commission in February this year.
Last week was the company’s first opportunity to sell the new shares since receiving the regulatory approvals, as it was subject to a two-month issuance blackout ahead of its earnings release. The deal came just before the Hong Kong market was due to close for the long Easter weekend, and at a time when equity markets were quite choppy. However, as the management intends to do a non-deal roadshow on the back of the 2012 results, it may have had to wait for another few weeks had it decided not to launch when it did.
Sinopharm’s share price has been range-trading between HK$23 and HK$27 pretty much since August last year, but hit a 52-week high of HK$27.45 on March 11. The close of HK$27 on the day of the placement put the stock 59% above last year’s low-point of HK$16.98, which it hit in June.
In the announcement, Sinopharm said its directors view the private placement as an opportunity to raise capital while at the same time broadening the shareholder base.
Sinopharm will receive approximately HK$4 billion ($516 million) of net proceeds from the deal after fees and expenses. It will use the money to expand its pharmaceutical distribution and retail network and to replenish its liquidity after the expansion.
The company’s revenues increased by close to 33% in 2012 to Rmb135.8 billion ($21.6 billion), while the net profit expanded by 26.5% to Rmb2 billion. Sinopharm’s chairman said in the earnings statement that the company is expected to sustain its “relatively rapid growth rate” this year as it continues to benefit from the continuing reforms to China’s pharmaceutical and healthcare systems.
The majority of analysts are positive on the stock, with 14 of the 22 firms that cover the company rating it a “buy”, Bloomberg data show. Only two analysts recommend investors to sell. The average 12-month target price of HK$29.59 implies 20% upside from the placement price.
The share price did fall 7.2% last Thursday after the deal was completed, but closed 1.8% above the placement price.
At $526 million, this is the fourth-largest follow-on equity capital-raising in Asia ex-Japan this year. Aside from the $3.1 billion private placement by Sinopec, India’s Axis bank has raised $1 billion from a combined qualified institutional placement ($877 million) and preferential offering to Life Insurance Corp of India (LIC), and Hong Kong-listed Evergrande Real Estate Group has raised $561 million from a top-up placement.
Shui On Land rights issue
After the market closed last Thursday, Chinese real estate developer Shui On Land announced that it intends to raise at least $474 million, and potentially as much as $533 million, from a one-for-three renounceable rights issue. The price of the rights shares has been fixed at HK$1.84, which translates into a 44.9% discount to Thursday’s close of HK$3.34 and a 38% discount to the theoretical ex-rights price of HK$2.97, based on the same market price.
The controlling shareholder, Shui On Group, has committed to take up its 56.76% entitlement in full and the rest will be fully underwritten by BNP Paribas, Standard Chartered and UOB Kay Hian. Hong Kong-listed Shui On Land will start to trade on an ex-rights basis from April 18 and the deal will be open for subscriptions from April 30 to May 13.
Part of the net proceeds will be used to fund the relocation of tenants in relation to Shui On Land’s Shanghai Taipingqiao and Rui Hong Xin Cheng projects. The rest will go towards the acquisition of assets or businesses that are relevant to the company’s principal business, if suitable opportunities become available, and the repayment of debt.
